Before investing in HMO, take the time to look at the rental operating costs of property investment. Checking the operating costs of an HMO helps investors to recognise all of the costs related to a property investment deal. And this is especially essential as operating costs can make or break a deal.
Common Operating Costs for Your HMO
Buildings insurance is necessary to protect your occupants and property investment. If your HMO is furnished or you have other items in the property, you’ll likely want to also get contents insurance. The cost of buildings and contents insurance varies widely; however, it depends on the value of the property.
As an HMO property investor, you will probably face a void period at some point, and it’s important to be financially prepared for this. We recommend planning an estimated two to three weeks of unrented periods per year, which amounts to around 5% of the total yearly rental revenue.
Maintenance costs cover any renovations, repairs or replacements that need to be made in the property, such as fixing a boiler or leaks. On average, 2% to 5% of the annual rental income can be estimated to cover HMO maintenance for a year.
Management services can help you run your HMOs with fewer troubles. You decide whether you want to use a management company or not. The market rate for a specialist agency to fully run and manage an HMO typically ranges from 10% to 15% of the gross rental income.
Additional Operating Costs:
Utility bills include water, electricity, and gas. Estimated utility costs will need to be based on the number of HMO occupants.
Internet & TV license
In 21 century, HMO tenants are willing to have high-speed Internet and a TV license to be included in the rental price. Currently, high-speed broadband is estimated to cost £360 per year, while the cost of a yearly TV license fee is £155.
Council tax is another operating cost to consider. Visit MyCouncilTax.org.uk to find an estimate of how much council tax you would owe for your HMO property.
To find out the cost of cleaning an HMO investment, multiply the cleaning requirement by the cost of cleaning per hour. Housekeeping is typically provided with serviced accommodation and cleaning is necessary before a new tenant arrives, which can be an essential cost for this type of investment.