Operating costs can make or break a deal so, before investing in an HMO, ensure you have all the information you need about the operating costs to ensure it’s a good investment. This will also help you figure out what rent to charge as well.
Shop around for good insurance. Buildings insurance is necessary to protect your occupants and property investment. If your HMO is furnished or you have other items in the property, you’ll likely want to also get contents insurance. The cost of buildings and contents insurance varies widely; however, it depends on the value of the property.
Make sure you can cover void periods – periods of time when you don’t have a tenant paying rent. As an HMO property investor, you will probably face a void period at some point, and it’s important to be financially prepared for this. We recommend planning an estimated two to three weeks of unrented periods per year, which amounts to around 5% of the total yearly rental revenue.
You’ll want to keep your property up to date and in good repair. On average, 2% to 5% of the annual rental income can be estimated to cover HMO maintenance for a year. Maintenance costs cover any renovations, repairs or replacements that need to be made in the property, such as fixing a boiler or leaks.
You can decide whether you want to use a management company or not. Management services can help you run your HMOs with fewer troubles. The market rate for a specialist agency to fully run and manage an HMO typically ranges from 10% to 15% of the gross rental income. You can decide to have full service or just have them run a few things – it’s up to you.
HMO Property amenity standards are the number and type of amenities that must be provided in all Houses of Multiple Occupation in accordance with the size and type of HMO property. These include:
- Heating
- Washing facilities
- Bedrooms
- Shared Kitchens
- Individual kitchens
- Individual bathroom/toilet facilities
- Fire Precautions
You may decide to include utilities in the rent and, if so, these will be part of your operating costs. Internet and TV licenses are also something that landlords are now offering as included in their rent. For a fairly low price, you can include these in the rent.
Council tax is another operating cost to consider. Visit MyCouncilTax.org.uk to find an estimate of how much council tax you would owe for your HMO property.
To find out the cost of cleaning an HMO investment, multiply the cleaning requirement by the cost of cleaning per hour. Housekeeping is typically provided with serviced accommodation and cleaning is necessary before a new tenant arrives, which can be an essential cost for this type of investment. This can be a service of a management agency if you choose to hire one.
