FAQ

Frequently Asked Questions

    Where should I buy in Coventry?

    For investors who have the strategy to buy, refurbish a property into a HMO / Multi Let and then rent it out, I would always recommend the city centre post codes of CV1, the Lower Stoke / Ball Hill location of CV2 and then the Earlsdon location of CV5.

    • Why?
      • The market place for HMO tenants tends to be students and young professionals.
        • In a lot of cases, prospective tenants won’t have a car so location is key
          • Very well connected with public transport links
          • Supermarkets, banks, pharmacies, bars, restaurants and takeaways are in close proximity
          • Near to the city centre attractions and shopping
      • A lot will depend on which tenant market you are specifically targeting

    For investors who have the strategy to buy, refurbish a property into a Single Let and then rent it out, again location will be important. Would you want to live there?

    • Think about key things that will attract a tenant to living there:
      • Transport links
      • Schools
      • Employers
      • Supermarkets and amenities nearby
      • Ease of access

    For investors who have the strategy of buy, refurbish and sell, location is important but not quite so critical if the deal is there.

    • What is important to consider is who will buy this house and what’s nearby to attract a buyer to this area?
      • Schools
      • Business parks
      • Large employers (E.g. Jaguar Land Rover or Severn Trent)
      • Supermarkets and amenities nearby
      • Ease of access to major roads such as motorways
      • Well kept gardens
      • Neighbours

    If there’s one tip you can give me with property investment, what would it be?

    When buying a rental property it is important you consider the target rental market.

    • Ensure you are able to rent your property to as many target markets as possible
      • E.g. Should your property not be available for the start of the academic year and initially planned to let solely to students.  Buy in a location which will also attract professionals and where there is a demand

    How much will it cost to buy a HMO?

    This is a very open ended question. To give you a real idea on this, it best to give an example situation:

    • An investor will be buying a 3 bedroom 2 reception room house with a large kitchen diner in Earlsdon
    • We will convert this house into a 5 en-suite bedroom HMO with a shared kitchen diner
    • We will say an investor agrees to purchase the house for £235,000
      • What does the investor need to buy the property?
        • Home Buyers Survey      £450
        • Deposit of 20%                £47,000
        • Stamp Duty                      £9,250
        • Solicitors                          £1,250
        • Total                                £57,950 
    • Now the property is purchased, we move onto the refurbishment
      • We will be renovating the whole property to include:
        • Removal of old bathrooms, kitchen, doors and any other items not to be kept
        • Electrical rewire of property and new consumer unit fuse box. (I always recommended this to ensure it us up to current standards and to reduce ongoing maintenance)
          • Including new lighting, emergency lighting, fire detection system and fittings such as plugs and switches
          • You should also consider data wiring to ensure whole house gets excellent WiFi signal
        • New central heating system and boiler for heating and hot water including a water cylinder to cope with additional demand

     

        • 4 new en-suites (make use of one of the current bathrooms)
        • New replacement kitchen diner
        • Redecoration throughout
        • New replacement hard wearing flooring throughout
        • Fire doors on the applicable bedroom and high risk doors
        • Replacement blinds in each applicable room
        • New replacement furniture for each bedroom and the communal kitchen diner
        • Total est. cost: £60,000

    Total initial spend prior to refinancing:  £117,000 

    NB. When you re-finance your property based upon its new value, you will be able to get a good proportion of your initial investment capital back. 

    What furniture should I put in a HMO room?

    • Should a room allow it, a double or a 4 foot small double bed with a headboard. I do not recommend divan beds; a bed frame (either metal or wood) is better to allow circulation around the room
    • A bedside table
    • A chest of drawers
    • A wardrobe
    • A desk with an office chair on request in particular for student tenants

    How much money can I make from my HMO?

    When calculating potential net income, it is important to take into account all potential deductions. Don’t make the numbers work, make sure they work for you!

    I will give an example of a 5 bed multi-let / HMO which is managed by a lettings agent> I will base my cash flow on the below:

    • Maximum amount of rental income per month

    Minus

    • 8-10% voids
    • Tenancy setup fees for 7 new tenancies over a 12 month period added together and then divided by 12 months for a monthly cost
    • Lettings management fees
    • Costs per tenant of 5 x £85 per month (This takes into account water, council tax, gas, electric, WiFi, cleaning and maintenance)
    • Monthly mortgage costs

    Total forecast net income per month

    What will make me the most money?

    In property, as long as you do your due diligence and you are sensible with your spend, you can make good money.

    I would say there are two potential strategies you can take to allow you to take ownership of a property and make money:

    • Buy, renovate and let out
      • This is a long term strategy
        • Option to refinance after a refurbishment to get some money out
        • Make a net profit each month on the rental income
        • Property will increase in value over time and perhaps allow a re-mortgage in coming years
    • Buy, renovate and sell (A flip)
      • This is a short term strategy which is higher risk but the short term benefits can be significant
        • If a property is bought at a discounted rate and the refurbishment adds a lot of value, by spending on necessary work and not luxuries, you can make significant profits
        • On the flip side, you cannot guarantee you’ll get the price you want for it
        • Do also remember the capital gains tax involved that you will need to pay within 30 days after you’ve sold the property.

    How do I calculate Return on Investment (ROI) on a rental property?

    When an investor asks me how much money they are going to make and what’s the ROI, I always like to give a pessimistic view to ensure the numbers are realistic.

    Carry out the below calculation to get the ROI:

    • You need to work out the total money (investment capital) which has been put into a deal (not including mortgage funds)
    • You need to work net monthly rental income after all deductions and multiply these by 12 (12 months for annual figure)
      • You then divide the annual net monthly rental income by the total investment capital and this should give you the ROI
        • You will get a figure showing 0.**
        • The figures after the point give you the percentage

    How quick can I get my money back out of the deal on a rental property investment?

    The best way to show this is with an example:

    • Property purchase price of £235,000
    • A property is revalued at £313,000 following a £60,000 refurbishment
    • An new 80% loan to value mortgage on the new value releases £62,400 equity
    • Initial investment capital was £117,000 including refurbishment cost
    • This refinancing means there is £54,600 left in the deal

    Net rental income after all deductions and mortgage is £1,000 per month and £12,000 per year

    With property values increasing over the years and the net income each month, I would forecast the investment capital back out of the deal in 3 years once refinanced

    What strategy should I have, single let or multi-let?

    Both strategies are good as long as an investor has done their due diligence at the start, the numbers work, and the tenancies are managed properly.

    • A multi-let
      • Can be very lucrative if done right and in the right location
      • You will have higher tenant turnover
      • More maintenance
      • Higher voids
        • But the positives if tenancies are managed properly outweigh the negatives with great cashflow
    • A single let
      • You tend to have longer serving tenants
        • Lower maintenance costs
        • Lower voids
        • Lower ongoing costs
      • With the above positives, the negative with this is significantly less net monthly income.

    When is a good time to invest in buy-to-let property?

    As long as you do your due diligence on what to buy, where to buy, for how much and the demand, you are investing wisely in property at any time.

    What licensing and planning rules apply to HMOs?

    Should you wish to develop a property in Coventry into a HMO which will have more than 6 tenants, yes you will.

    Should it be a HMO with 3-6 tenants in the property, you will not need planning but still need a HMO License