Property with 'flatlets'
Discussion
Just visited a commercial residential property - good location etc, with 3 bed ground floor owners place and then aboove 2 floors with 7x single room flatlets, with sink / kitchen area in the room, and shared bathrooms, WC, etc. Generates £100 / week / room....so £700 / week and room to grow this to £1000 / week with ground floor conversion.
Idea would be to use the large 3 bed ground floor to create 2, 3, 4....more flatlets...so some works needed.
Any clues what I should be looking for ??
This is my 1st step into this business. All certificates, fire equipment, etc is up2date, and 6 of 7 flats have been rented for a very long time !
Is this likely to be a business entity, so I can just buy the Ltd Co ?
What am I supposed to be afraid of ? It looks like an excellent 'pension stream'...
Many thanks, Big Ant
Idea would be to use the large 3 bed ground floor to create 2, 3, 4....more flatlets...so some works needed.
Any clues what I should be looking for ??
This is my 1st step into this business. All certificates, fire equipment, etc is up2date, and 6 of 7 flats have been rented for a very long time !
Is this likely to be a business entity, so I can just buy the Ltd Co ?
What am I supposed to be afraid of ? It looks like an excellent 'pension stream'...
Many thanks, Big Ant
Sounds good to me, things to consider;
1). Only a small amount of lenders out there for properties like this, so you'll pay higher rates, need a larger deposit and need to jump through all sorts of hoops to raise finance on it. Even if your a cash buyer its something to consider.
2). Because of the above the market of people who are able to buy properties like this is smaller, so they can take longer to sell and are harder to value.
3). Id probably allow for reinvesting the profits back into the building for the first 2 to 3 years.
4). Keep it in A1 condition no matter the cost. It'll rent out quicker at higher rents and you'll get better tenants.
5). I would consider setting up your own Ltd company to make the purchase. Because of the changes in mortgage interest rate relief.
6). I would assume a property like that is let out including bills, so account for the cost and be prepared to spend time working on making the building efficient. Smart meters to track usage and temperatures are well worth the investment.
7). Have a look at this http://hmocalculator.com/ useful calculator.
Are the tenants students?
Thanks Animalmother, useful points raised....especially about valuation and saleability in the future.
I am looking at it as a 'pension', to convert ground floor 4-5 rooms into 2-3 more units, to create a 9-10 unit property.
The current 7 flatlets are all let to what sounds like middle age / retired single men...and one couple. Tenure from 30 years (!), 22 years, 17 years....least was 2 years. It is a lovely quite location, 2-300m from coast, opposite town gardens.
£100 is all incl of council tax, heating (gas) but electric is own coin meter.
So against a potential £100 x 9 units x 50 weeks = £45k, there will be ongoing continuous maintenance, council tax bill, gas bill, annual certification costs, less vacant moments...but looks like the occupancy could be high %.
Not sure how long £100 / week has been fixed for, so could imagine a small rise is feasible, especially if some upgrades are incorporated into maintenance.
Apart from initial maintenance, conversion of ground floor into 2-3 units....I can't see huge downside.
We live 10 minutes away by car, so can easily keep eye on it.
Big Ant
I am looking at it as a 'pension', to convert ground floor 4-5 rooms into 2-3 more units, to create a 9-10 unit property.
The current 7 flatlets are all let to what sounds like middle age / retired single men...and one couple. Tenure from 30 years (!), 22 years, 17 years....least was 2 years. It is a lovely quite location, 2-300m from coast, opposite town gardens.
£100 is all incl of council tax, heating (gas) but electric is own coin meter.
So against a potential £100 x 9 units x 50 weeks = £45k, there will be ongoing continuous maintenance, council tax bill, gas bill, annual certification costs, less vacant moments...but looks like the occupancy could be high %.
Not sure how long £100 / week has been fixed for, so could imagine a small rise is feasible, especially if some upgrades are incorporated into maintenance.
Apart from initial maintenance, conversion of ground floor into 2-3 units....I can't see huge downside.
We live 10 minutes away by car, so can easily keep eye on it.
Big Ant
You may need to ask yourself why the owner felt the need to live on the premises? Do the tenants need a care taker or would it for instance have anything to do with the HMO licencing laws?
This page suggests that maybe it does: https://www.gov.uk/house-in-multiple-occupation-li... One of the requirements for HMO licencing is 'at least 3 storeys high', an owner living on the ground floor might argue that the only part in multiple occupation is two storeys so doesn't need the licence.
You need to contact the local council with regard to licencing and get their views on converting the ground floor to more rooms. You might need to install more facilities for instance.
I would have to add that I'm not a housing expert.
This page suggests that maybe it does: https://www.gov.uk/house-in-multiple-occupation-li... One of the requirements for HMO licencing is 'at least 3 storeys high', an owner living on the ground floor might argue that the only part in multiple occupation is two storeys so doesn't need the licence.
You need to contact the local council with regard to licencing and get their views on converting the ground floor to more rooms. You might need to install more facilities for instance.
I would have to add that I'm not a housing expert.
You'll need planning permission for the additional units and this could be a problem. You will have meet the council's current standards for habitable room sizes and facilities which may now be substantially more onerous than they have been in the past.
Generally HMO's are not encouraged by the Planners unless there is an associated use restriction, eg. student accommodation. I'm not sure they'd approve new flats with shared facilities either - you need to check their Development Management policies.
You need to get a copy of the HMO licence and look for any restrictions or schedule of improvements within the licence conditions.
How many of the tenants are on housing benefit? Forthcoming welfare reforms could affect your rent collection rates.
I've come across a few people who run HMO's and they can be a money spinner, but they tend to attract the needier types of tenants who can be demanding. You also have to be very careful putting new tenants in because with shared facilities it only takes one bad apple to ruin the place for everyone else and you then got multiple angry tenants on the phone. It's at this point being 10 minutes away turns into a disadvantage! Don't underestimate the management effort required. Is there enough in it to put that in the hands of an agent? If not, what happens when you want a long holiday?
I know a couple of people who do very well out of these types of properties, but neither of them say it's easy money. One guy rents about 20 houses out as well and says his two 8 room HMO's give him twice as much work as the houses put together. Both are the type of people who aren't phased by a confrontation.
Generally HMO's are not encouraged by the Planners unless there is an associated use restriction, eg. student accommodation. I'm not sure they'd approve new flats with shared facilities either - you need to check their Development Management policies.
You need to get a copy of the HMO licence and look for any restrictions or schedule of improvements within the licence conditions.
How many of the tenants are on housing benefit? Forthcoming welfare reforms could affect your rent collection rates.
I've come across a few people who run HMO's and they can be a money spinner, but they tend to attract the needier types of tenants who can be demanding. You also have to be very careful putting new tenants in because with shared facilities it only takes one bad apple to ruin the place for everyone else and you then got multiple angry tenants on the phone. It's at this point being 10 minutes away turns into a disadvantage! Don't underestimate the management effort required. Is there enough in it to put that in the hands of an agent? If not, what happens when you want a long holiday?
I know a couple of people who do very well out of these types of properties, but neither of them say it's easy money. One guy rents about 20 houses out as well and says his two 8 room HMO's give him twice as much work as the houses put together. Both are the type of people who aren't phased by a confrontation.
Quinny100, many thanks, some excellent points raised.
Post-divorce, now re-investing after dramatic return to Cash, so started from an asset allocation perspective. Life is 'very relaxed', as markets aren't easy, and living expenses are low enough not to erode cash quickly. But now, wanted to start allocating to property, business, etc. The points you raised....hit precisely the 'issues' I do not want to incur.
Excellent, many thanks, Big Ant
Post-divorce, now re-investing after dramatic return to Cash, so started from an asset allocation perspective. Life is 'very relaxed', as markets aren't easy, and living expenses are low enough not to erode cash quickly. But now, wanted to start allocating to property, business, etc. The points you raised....hit precisely the 'issues' I do not want to incur.
Excellent, many thanks, Big Ant
As pointed out, these will be classed as HMO's. Understand the regulations and fees around these.
You also need to factor in Insurance and also costs for letting. Are you going to do this yourself or via an agent?
Maintenance and upkeep also required. Gas certs every year.
It's not all plain sailing, hence why I've never bothered with HMO as pain in the arse. (although profitable for some)
You also need to factor in Insurance and also costs for letting. Are you going to do this yourself or via an agent?
Maintenance and upkeep also required. Gas certs every year.
It's not all plain sailing, hence why I've never bothered with HMO as pain in the arse. (although profitable for some)
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