Updating post from Reddit.
I'm thinking of getting into the HMO business and have been looking into various costs I can expect. On doing my calculations for my 1st HMO, I have found that while my gross yield is 10%, which I think is about the norm, my net yield is just under 1% if I put the HMO in a limited company (To be clear I've got management costs @ 12.5% and my mortgage costs in here as well).
Are net yields of 1% normal for a 1st HMO and is this something that you would expect to increase over time and as you expand your portfolio? For me it doesn't seem to be worth it if the returns are just 1%. What gross and net yields do people get for HMOs?
I wouldn't do anything for a net yield of 1%. Just put your money in index tracker funds instead and after tax you'll yield more than 1% for no work and zero risk of criminal record.
Sounds like a pretty horrific deal, I’d definitely recommend cutting your teeth on 5 or so standard btl’s first
You are taking into account the property market growth right? That's been 427% over the past 30 yrs, and obviously with a mortgage you get to see that leveraged too.
The tenants and rent from them are barely worth it compared to the property price return.
1%? You must have the calculator upside down. When I was in HMOs is was easily 50% you don’t take that much hassle for nothing. It can’t be 1% no BTL is ever 1%!
Don't forget corporate tax, income tax, maybe national insurance (depending how much you take).
However, at 1% your margins are non existent should anything go wrong. We are predicted to go into another recession so this means people are not gonna be able to pay their rent. That means 12 months to get them out plus fixing any damage they make.
This also means that your utility bills, council tax, insurances, management fees, mortage rates (including mortgage fees), void periods, all goes up.
If you stress test at 1% margin you will lose your ass on that deal.
For me personally I would not take a hmo unless it nets at least 10%. Otherwise you are better off investing money in an isa or high yielding index fund which return on average around 10% annually.
I was even looking at installing individual electricity and gas metres in each bedroom with pay as you go system with an intelligent thermostat controller in the common areas together with sensors to monitor ambient house temp.
Expensive solution but with the energy prices in HMOs with the way they are definitely worth it.
If I was in your place I would be looking at commercial to residential conversions for huge hmo (10 bed and above). 6 bed and lower HMOs (minimos) are not worth the effort anymore.
Are you dividing the total mortgage or just your initial deposit sum? I suspect you’re doing total mortgage.
I’m doing the total mortgage of £120k when the property is worth £150k