Hmo or similar passive income

phill2-0-0-3

Hi

I am looking at hmo for a while as a investment .

I currently have a property worth around £550/600k mortgage free 40+ yo .

I am looking to release equity from my house to purchase.

I require the extra income to reduce hours at work .

I do manual warehouse work .

And it's got to the point I dread the thought of going to work .

So I have to find something where I can work for myself I can't keep doing this for 20+ years.

Whats the safest bet with hmo start with a 3/4 bed or straight to a 6 ?

I live down south so house prices are extremely high should I venture further away where there cheaper ?

But I can not check up on the property?

Higher ROI ?

Is there still money in these type of rentals ?

I no buy to let is Preety much dead.

It would also be towards my retirement when the mortgage is paid in 25 years

Of what I can see

4 bedroom hmo (hull)

mortgage 25 years

Repayment £800

Interest only £550

Water £100

Gas electric £200

Insurance £30

WiFi TV license etc £70

Council tax £200

Repairs £100

£1250/£1500

Annual rent is £22000

So £7000 if I manage myself

-2200 if run via estate agency.

£4800 income

Not accounting for periods without tenants unpaid rent etc

So say £4000 a year to be conservative .

I'm aware I can deduct utilities for tax purposes but not the mortgage .

So around £2800 in tax at 20% ?

So I'll be lucky to make £1000/2000 a year.

Is this accurate or am I missing something?

Is there any other viable options for passive income using the equity in my house?

Thanks

_Penny_Dreadful

https://forums.moneysavingexpert.com/discussion/6659193/hmo-or-similar-passive-income

Letting property, especially a HMO, doesn’t provide a passive income.

penners324

Are you sure you understand th huge complexities of owning a buy to let ?

It's not worth the risks and those risks are about to get a lot worse

penners324

Down sizing to something about £250k then investing the balance sounds a better option

dinosaur66

HMO are the biggest money earners as far as being a landlord is concerned

but you really only want one with a current HMO license and been done to a decent standard as you are working full time and you are not going to buy one within 200 miles of where you live

me personally i would not take equity out of my own property

and you definatley do not want a HMO as a first rental property -they are for experienced large portfolio landlords only IMO

i used to travel to withernsea (just past hull ) from stratford and it was over 4 hours always traffic somewhere although a1 is better now

if i was you starting out i would try durham / one of the towns on the a1 corridor and look to buy a decent turnkey recently modernised for selling with a modernish boiler/epc C and low maintence garden / 2 bed bungalow /

60k outlay / rent would be £600 approx a month -get a local handyman to do repairs /clean gutters / fix fences/ and a self employed gas man to do boiler maintence / pay rent direct to yourself and bungalows are easy to sell if if does not go smooth / easier to maintain and usually in a quiet OAP area and in my experience tenants who look after them well .

durham does not have great capital gain but lots of areas are underwater if you bought in 2022

can you retire on it no / but 3 of them brings in 20k gross plus 12k state pension and your work pension

depends on your spending habits

as to passive income if you can delegate to a trusted handyman / give the tenants his number and go for a finished property rather than a do upper less profit but no stress and have an open weekend with regards picking your tenants / me i like OAP in bungalows never had a missed payment of any of them ever and at least in my experience keep them very well /

my nephew looks after 24 HMOs for an investor in chelmsford and says it is non stop every day

freesha

It is NOT a passive income. It's a residential lettings business, so treat it with the seriousness it needs, or don't bother.

saajan_12

https://forums.moneysavingexpert.com/discussion/6659193/hmo-or-similar-passive-income

4 bedroom hmo (hull)
mortgage 25 years
Repayment £800
Interest only £550
Water £100
Gas electric £200
Insurance £30
WiFi TV license etc £70
Council tax £200
Repairs £100
£1250/£1500
Annual rent is £22000
So £7000 if I manage myself
-2200 if run via estate agency.
£4800 income
Not accounting for periods without tenants unpaid rent etc
So say £4000 a year to be conservative .

You need to be clear what costs you're including in which scenario and you're switching between monthly and annual figures which doesn't help.

1. The £7000 seems to reflect paying an interest only mortgage? In which case that doesn't account for paying off the property, and after 25 years you'd have to sell as its usually hard to get another mortgage at that age. If you are anticipating a paid off property then you need to account for the repayment mortgage cost.
2. £4800 → £4000 is accounting for rental voids, ie £800? I would plan for 1 month a year, ie 8-10% of your annual rent which is £1800
3. You're not accounting for changeover costs, which is usually higher in a HMO as people see it as short / mid term accomodation and don't live there for years. Things like inventory, cleaning, deposit protection, decoration, gas certs, changing locks, etc. The agent commission may cover some of this but tradespeople will be charged on top.
4. You do get tax relief at 20% on the mortgage interest, not on the capital repayment part.

Guna

Being a landlord is not passive income even if you have an excellent management in place. HMO is probably the least passive of them all because instead of one tenant you have 4 or 6, each with a different issue and each coming and going at a different time.

The only time I was able to make a decent profit was when I did AirBnB and had an absolutely amazing management company who handled everything. Even then, there were near monthly calls having to buy this and replace that. With the council tax uplift on second homes, this also have now become dead in the water and I had to sell my rental flat last year.

At this point, I would honestly consider freeing up some cash to retrain and changing careers for something more sustainable.