I’m going to share with you all of the hidden costs of being a property investor that nobody else is going to tell you.
Hi, I’m David Sigler,
I’ve been a property investor for over 30 years and I’ve invested with every single strategy in the book. I’ve done Single-Lets, HMO’s, Serviced Accommodation and more, whatever the strategy you’re looking to master, I’ve done it and I’m going to help you on your property journey.
This is a project that we’ve just picked up for one of our investors. Why don’t I show you around?
Okay, so this is a standard family home and we’re going to convert it into a 6 bed, all ensuite HMO for working professionals as we’re very near to the local city centre.
Now, the front two reception rooms are going to be renovated into bedrooms, the rooms are nice and in the corner, we’re going install back-to-back ensuite bathrooms, one to serve the bedroom and one to serve the front room.
We’re also going to knock down a wall to create more space, so there’s quite a lot of refurb work here. There’s a chimney breast that needs to be removed which is a messy job and stubble to be removed to open up the entire communal living area.
The kitchen is also being knocked through into the toilet area and beyond to create a light and airy space and more space for a walkthrough from the front two bedrooms going to be communal space and the kitchen will be large enough to accommodate a fully functional high-quality kitchen, a seating area and a TV on the wall so the area becomes somewhere where the tenants can congregate and spend time together.
Okay, let me explain the development to the upstairs area of the property. Again, there’s going to be two really big bedrooms with back-to-back ensuite bathrooms immediately above the bathrooms downstairs. Next, there’s going to be a corridor put in upstairs to bedroom four and bedroom five is going to be extended to include an en-suite and the bathrooms will be back-to-back similar to downstairs as this makes the waste pipe and water supply cheaper to install. Finally there is bedroom six which will be a huge room as we’re remodelling the room and it overlooks the garden with an adjacent en-suite.
There are hidden costs involved with being a HMO landlord and I’m going to share a few of them with you. So take the HMO project for instance, there are a number of costs involved, you’ve got to pay stamp duty when purchasing the property and there’s the legal fees for the solicitors.
If you’re buying the property on finance and you’ve got to apply for a commercial loan from a registered commercial lender there’s fees, there’s also fees for the surveyor to come and value the property and appraise it to make sure that their money is invested wisely.
Additionally, there’s mortgage application fees and then legal fees and costs in running a HMO property correctly. This means that you’re going to have to secure a HMO license by applying to the local authority and this can only be approved if you’ve have ensured that the HMO is safe for a prospective tenant to let a room.
Next, there are letting agent costs and they’ll most likely charge you a landlord introduction fee because they can’t charge tenants anymore and then you will be able to start getting tenants into the property and finally you will have a full functioning HMO property rented out.
Now, that’s all of the legal costs out of the way but you’ve also got to furnish the property, most HMO landlords will lease the furniture for a six bid HMO and it can cost roughly £300 per month and come off of the rental income and can considered another hidden cost
Okay, so the other running costs that come with a HMO investment property that you may not of thought about is supplying Wi-Fi to the property, the monthly council tax cost, the gas, the electric and the landlords insurance. Plus there’s the overall cost of property ownership, upkeep and maintenance that you need to be aware of when becoming a landlord.
It all sounds like a lot of costs but don’t worry, I didn’t know about a lot of these costs when I started investing. But what you can do is appraise all of these potential property costs at the beginning of the project so that you can determine whether or not it is a viable investment project to undertake.
Yes, HMO developments can be huge projects but they can also be very, very viable and if you’re aware of all of the hidden costs upfront then you can get your tenants in living happily and also earn a monthly cashflow.
It’s important to remember that being an investor also means that you get to be a great landlord but also keep on top of your rent roll in the nicest possible because all landlords will get some tenants who might abuse your hospitality.
In my own portfolio, I’m struggling with two or three tenants who pre-COVID were paying rent and were paid up to date but since the COVID pandemic have stopped paying rent. Now, there is a special criteria that landlords have to comply with before they can take any enforcement against tenants and this is another hidden cost of being an investor and being a landlord that you might have figure out.
Now, I’m not telling you all this to frighten you off, I’m telling you all of this so that you can be prepared when purchasing an investment property. So I always work my figures out on a 10 months rental income basis in order to absorb the shock of any tenant losing their job or getting into difficulties, maybe they can’t make their rent on time every single month so if you base your investment figures out on 10 months rent you’re creating a buffer for yourself and it will give you a good point to evaluate whether to take on the HMO project or not.