Unless you are very creative or use other peoples money, you will need a minimum of £35,000 to buy a HMO property plus around £5,000 for legal fees and stamp duty.
Samuel Leeds is known for finding and buying HMO’s and he says,
“You can find potential high-cashflow HMO properties for £100,000, if you know where to look.”
For a £100,000 purchase, this would typically require a £25,000 deposit. You will also need to convert the property to a safe and fit HMO which will cost at least £5,000. Plus don’t forget most HMO’s are kitted out with furniture. A done-for-you high end furniture pack may cost around £5,000 depending on the spec – www.powerwhoosh.co.uk offer an excellent service for this.
So all together, you can see how this adds up to £35,000 as a minimum without taking into account legal fees and stamp duty.
Samuel Leeds says in his book, “Buy Low Rent High” that properties suitable for HMO’s must:
1) Have at least 4 lettable rooms of a minimum size of 70 square feet
2) Be in good condition to save money on refurbishments, unless planning to increase value
3) Be located close to a large town or city centre, 15 minute commute without a car.
4) Be purchased for a good price to get a high ROI, typically around £25,000 per lettable room.
5) Have a well established HMO Manager in the area who is happy to manage it for you.
Get a free copy of the book here: https://www.property-investors.co.uk/freebook
A HMO property like this will typically rent out at £1,400 per month. You should be aware of the running costs which mostly boils down to mortgage payments, utility bills, maintenance and management.
Samuel’s rule of thumb is that 50% of the rent will go towards expenses, and 50% will be left as gross profit. This is why HMO’s are a very realistic way to generate returns on 20% per annum and beyond.
Before buying any HMO property you must always check that the area has a good rental demand and the councils guidelines on Article 4 and Licensing.
Samuel Leeds has also produced a very informative video which is entitled – “My Property Business Plan of 2018”