5 Costly Mistakes Investors Make When Investing In HMOs

The HMO market can be an exciting place for investors, but it's important to know what you're getting yourself into. The five mistakes below can be costly, and could make or break your investment. If you avoid these errors and do your research before making any purchase decisions, then you'll have a much easier time building wealth through HMOs:

Mistake 1: Not Reading Planning and Licensing Regulations

The first thing you should do when considering investing in a HMO is to read the planning and licensing regulations. This will help you determine whether your property requires planning permission to be converted into a HMO, if there is an Article 4 direction in your chosen location restricting the property being converted in to a house share, and will give you an understanding of the specification your property has to meet in order to gain its license. These should be your bible, guiding your decision plans.

Mistake 2: Picking the Wrong Location

When it comes to HMOs, location is extremely important.

Investors need a location that's convenient for their tenants and has ample parking. They also need to consider the competition in the area, as well as what sorts of amenities are available nearby (e.g., grocery stores, restaurants). The wrong location can make or break an investor's investment strategy—a great property in an undesirable area will not be appealing to potential renters and investors alike.

If you're new to investing in HMOs, our blog on choosing a location might help you get started on finding your ideal spot: https://www.easylivinguk.com/post/how-to-choose-a-hmo-investment-area

Mistake 3: Not Having a Planned Budget

You may not realise it, but having a planned budget is actually one of the most crucial steps to investing. The reason is simple: Without a planned budget, you won't know how much money you can afford to invest or how quickly you should expect to burn through it.

That's why it's important that before you make your offer, you understand the budget for purchasing the property, refurbing the property, furnishing, as well as what to expect each month from renting, minus your expected outgoings; and finally what you should expect as a refinancing figure. This will give you a good picture as to whether if it is a good deal, and how much room for error you have.

This followed by a good understanding of the projects risks, how likely they are to happen, and how much it would cost you to resolve, will give you an idea of if the deal stacks up and how many risk variables there are to your plan, and if you have enough fat in the deal if these risks were to materialise.

Mistake 4: Picking the Wrong Builder

You want to pick a builder with a proven track record of delivering quality projects in your area. You need to ensure they can provide you a quote with a clear scope of what they will and wont be doing. It would be a serious issue if you ran out of money before you were able to get tenants in. You want your builder to be reliable, communicative and trust worthy. The best way of finding this builder is through word of mouth, reviews and examples of their past work. Once you find this team don't let them go!

Mistake 5: Picking the Wrong Tenants

One of the biggest mistakes you can make when investing in HMOs is choosing the wrong tenants.

When you buy an HMO, it’s important to be able to trust your tenants and their ability to pay rent on time. If you don’t pick good quality tenants from the start, this can cost you thousands of pounds if they move out early or cause damage to property during their stay.

You should thoroughly vet your proposed tenants, and ensure they are a good fit for the property.

There are many factors to consider when choosing a tenant, such as compatibility with the house and cleanliness, but the most important thing is their ability to pay their rent on time. If they don’t, then you will not earn any income from your HMO investment.

This means that you will have to cover the costs yourself, which can be extremely expensive if your tenants miss payments often. You should also check that they have good jobs and are able to afford the rent.

Conclusion

Although the HMO market is growing, investors need to be careful about where they put their money. If you’re looking to invest in an HMO, make sure you partner with someone who understands how to deal with these challenges, or make sure you have an in-depth understanding on how to manage these potential pitfalls so that your investment doesn’t go up in flames!

Takeaway: Come to our monthly HMO Investing Webinar to find out more about our HMO Investments - https://www.easylivinguk.com/contact