Real Estate Investor Magazine South Africa Real Estate Investor Magazine - April 2017 | Page 44

INVESTOR INSIGHTS
HMOs
The Cash Cows of the Property World
BY WARREN BRUSSE
T
he house of multi occupation (HMO) strategy
is the cash cow of the property world. In
simple terms, a HMO is when you repurpose
accommodation to allow for multiple tenants. This
means that you will receive more than one rent check
per month and it is a very lucrative strategy from a
cash flow point of view.
Using the HMO strategy, you will attract various
types of tenants, and this is dependent on your
features, location and the letting agent that you
use. Most HMOs are suited for students and young
professionals. When investing in houses of multiple
occupation, we prefer to buy family homes and
subdivide them into five or six bedrooms, housing one
tenant per room.
Making a success of it
A critical success factor to the HMO strategy is
attracting the right tenants. When we employ this
strategy, we don’t pick just any property in any town,
but rather, we analyse the market conditions, the
regional development plans and the kind of tenants
that would be attracted to the area. We ensure that we
invest in locations and properties that attract young,
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APRIL 2017 SA Real Estate Investor
up-and-coming professionals. They tend to yield the
most stable returns for us.
Luckily, in the United Kingdom (UK), there are
lenders that specifically invest in HMO. Unlike
South Africa, getting funding for a HMO project is
not impossible and we have negotiated interest rates
in the arena of 4%-5.5%. When you have the right
deal, credibility and plans in place, funding the deal
isn’t an issue.
Unpacking the benefits
The upside of the HMO strategy is obvious, but it
can be a risky adventure. The UK government expects
many regulations to be complied with when applying
this strategy, because with more tenants there is
increased risk of something going wrong. Some of the
basic regulations one must follow are:
1 Fire doors with intermittent strips: this is critical
and a must for any HMO in the UK. The fire door is
expected to last for 30 minutes, which provides the
tenants with enough time to evacuate the building.
2 Interlinked fire alarms: because of the number of
tenants and rooms, interlinked fire alarms must
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