Investment HMO or apartment?

merc_fintail

My wife wants to buy an apartment to rent out and have as a future asset / investment. We are in North Manchester and prices are not great. £130k will get a two bed with rental income of around £650 pm, there is the service charge for us to pay out of that.

I am thinking down the line of a multi occupancy house myself. For example, there is a double fronted end terrace near the metrolink for £140k that can be easily turned into a great four bed HMO with en-suite in each room and shared kitchen. We would be looking at around £110pw for each room, less council tax and bills.

The return would easy be three times more than renting out an apartment. Am I missing something here? Is it a supply and demand thing or too much hassle to do a HMO or what?

Im a kitchen fitter by trade, so can do all the works needed for conversion myself.

Thanks Paul

Cakeguts

I would suggest that you have a look at the rules on HMOs. For a start with an HMO the landlord pays the council tax. You have to get planning permission, then you may have to get a license depending on if you council has a licensing policy for HMOs. A lot of them do. There are a lot of rules on what has to be inside and HMO is terms of of safety features.

anselld

Manchester has Article 4 direction in place which means planning permission is required to convert from c3 to c4 (HMO) use ...

http://www.manchester.gov.uk/info/500207/planning_and_regeneration/4847/article_4_direction_changing_the_use_of_your_property/1

Certain areas have selective licensing ...

http://www.manchester.gov.uk/info/10084/private_landlords_information/7399/selective_licensing_renting_out_houses_in_designated_areas/5

But yes if you can get the necessary permissions, meet the standards and put up with the hassle the return should be significantly higher.

Cakeguts

The other thing I will say about Manchester is that if a 2 bed flat is in an area where there are a lot of 2 bed terraced houses that are cheaper to rent you are going to have a problem letting it. In theory it could let for £650pm but in practice that might only be for 6 months in each year because of the competition.

merc_fintail

Cakeguts wrote: »

The other thing I will say about Manchester is that if a 2 bed flat is in an area where there are a lot of 2 bed terraced houses that are cheaper to rent you are going to have a problem letting it. In theory it could let for £650pm but in practice that might only be for 6 months in each year because of the competition.

Agree, the house im looking at is a three bed large terraced. So I think it may be worth the gamble buying it and renting it as a house while trying to get planning as a HMO.

dimbo61

You may think it's worth the gamble but most lenders might not want to take that RISK.
You have the 25/35 percent deposit and money for surveys, legals, searches and mortgage fee (2 percent )
Then you need what £15/20,000 to bring the property up to HMO standards.
You talk about en-suite bathrooms, complete rewiring to modern standards, mains wired smoke alarms etc.
Now I am sure I will get flamed by lots of Armchair "HMO landlords " who will say this is not required but if you want to Rent out all the rooms you need to provide the Right kind of property furnished to a good standard with plenty of plug sockets, good security, modern kitchen/s and bathrooms.
If you are paying the bills then the most energy efficient lighting and appliances. Modern gas central heating and you need to be available 24/7 to respond to any problems.
Piece of cake really.
P.S. I would not buy a flat but maybe a modern 2/3 bed house

Cakeguts

merc_fintail wrote: »

Agree, the house im looking at is a three bed large terraced. So I think it may be worth the gamble buying it and renting it as a house while trying to get planning as a HMO.

You might need to add insulation too because it has to have an EPC of at least E now to be let.