Houses of multiple occupancy (HMOs) give great rental yields and are cash-flowing in a way not matched by other buy to let investments.
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1. NOT KNOWING THE COMPETITION

You need to know what the competition is offering. It is not enough just to look at the rental demand in an area (more on this later) you also need to know what kind of product there is on the market. When it comes to an HMO the product is the quality of bedroom on offer and of course the quality of the communal spaces. Don’t be afraid to stand out! Knowing what your competitors have on offer is the first step to offering better. And if your property is more desirable than others on the market then you will attract tenants faster, they will stay for longer and you get to avoid those costly void periods where there is either no one in the house or it is not running at capacity.

Interior design is key here. If your competitors have decorated their houses with bland magnolia throughout you can opt for a nice colour scheme. If your competitors are using staged shots (photographs used in promotional material) that show an undressed mattress on a wooden bed frame in the middle of a room - then make the bed up with nice sheets that match the decor.

Know what your competitors are doing and do it better.

See:

4 Unbeatable Tips For Adding Value To An HMO Property
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And:
What Room Sizes Do I Need in an HMO Investment?
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2. PICKING THE WRONG LETTING AGENT

You need to pick the right estate agent and this takes time. Pick up the phone and call as many letting agents as possible in the area. You need to know about their experience with HMOs and with the tenant profile you are looking to attract.

If you have already bought the property you will want to meet them at that property. We had an instance where we were looking to attract tenants from professional backgrounds. An agent we met at the property was used to working with local housing allowance tenants. They suggested putting locks on the kitchen cupboards and not supplying a TV (as it would be stolen). Although they had a lot of experience with HMOs they were the wrong people too manage the property as their experience would have led them to behave towards the tenants we were looking to attract in the wrong way.

3. GETTING IT WRONG ON RENTAL DEMAND

Supply and demand. You need to make sure you have the available tenants to make sure your investment is feasible. You will want to think twice if you are looking at a small town or village for your investment. We have found that towns with under 100,000 people in them don’t work for HMOs (although we know of people who have made this work). This is because there is simply not enough demand in the area to fill the rooms and also because even when the rooms have been filled for a period of time the tenants move on because there isn’t enough employment.

But even in densely populated areas such as cities you still need to do your research…

Using Rightmove and Zoopla to Calculate Rental Demand
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4. NOT KNOWING THE MAXIMUM RENTAL PRICE FOR THE AREA

The maximum rental value of an HMO can be calculated by looking at the rental value of one bedroom flats in the area. There is a price ceiling involved that you need to be aware of. If a room in an average HMO on the market at £400 per month and the price of a 1 bedroom flat is £450 a month then £450 per month is your rental ceiling. By doing improvements to your HMO you will be able to increase your rent but you will find it difficult to increase it beyond the price of a one bedroom flat.

But, don’t worry. Even small increases in the rent of a room per month will make a big difference to your bottom line over time.

5. PICKING THE WRONG STREET

Research. Research. Research.

Don’t assume, just because it feels right, that an HMO is going to work. You need to go to street level. Say, you’re looking at students. Don’t just ask yourself whether the university is close by, you need to ask, are the shops close enough? Are the transport links close enough? Does the street itself have a too much of a party atmosphere? Are there undesirable types wandering around at night. This kind of nitty gritty research is the make or break of any HMO investment.

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