Samuel: Hey, Samuel Leeds here and I won't to show you something that just blows my mind
in property. You see there's two houses right next to each other. This house, right here,
with the black door gives a total rental income of £12,000 a year. But the house next door
to it which is actually a cheaper house because it's a mid-terrace, rather than an end-terrace.
The house next door brings in £30,000 pounds a year. More than double the rent. How on
earth does the house next door bring in more than double the rent? Well, how he does it
is because it's used as an HMO. An HMO is simply when you rent out a house, rather than
renting out the whole house to a family, you rent it out on a room by room basis. If there's
five or more rooms rented out, we call that a HMO. If there's three or four rooms rented
out, like a mini-HMO, we just call that a multi-let property.
Samuel: And the reasons HMOs are so popular now in the UK is because you can literally
turn a normal house into a cash cow that is giving you serious money each month. A few
things you need to consider when buying an HMO. Firstly, you need to be like right now.
We are right here in the city centre. We're in Lichfield, so we are like maybe a five
minute walk from the city centre, which you've got to be.
Samuel: If you're buying a property, the rooms will not rent out if you're in the middle
of nowhere. If you're in from Field and Wales, it's not going to work. It needs to be close
to city centre. Number two, if you're renting rooms out, they can't be little cot rooms
because it's just not legal. If it's got five bedrooms or more, you're going to need a licence.
So the house has to be fit. The bedrooms have to be a minimum of 70 square feet or 6-and-a-half
metres. You're going to have a decent size kitchen where they're going to be sharing
the kitchen. Half a metre of worktop space per tenant. It's got to be a decent size house.
Don't worry about the garden. Don't worry about driving. It doesn't need any of that
stuff. But actually inside, it's got to be thick, it's got to be habitable, you're going
to need to have a licence for the property. So anything that would have five or more people,
you need to get a licence. And an HMO licence will cost you a round about, anywhere between
£500 and £1,200. But you'll have to renew every five years.
Samuel: Number three, the house is going to have to be in mint condition. Now, I personally
like to either buy properties that are already in mint condition. Or, add a lot of value
and then refinance them. But if you try to rent out an HMO, a room and the houses are
shabby and the rooms are shabby. And the furniture is shabby. What's going to happen is you're
going to attract shabby tenants. A dog kennel attracts dogs, so you've got to make sure
your HMO is nice. It's professional. So you get the best kind of tenants.
Samuel: Number four is, it's got to be managed by somebody because HMOs are quite difficult
to manage. So you need a leasing agency in the area that are close buy and happy to manage
HMOs. Now, you can't just find a run of the mill high street letting agency. It needs
to be someone that specialises in HMO and that's what's going to bring you your true
passive income.
Samuel: So where would you find someone that specialises in HMO management? Well, you can
look on SpareRube.co.uk and you can see other people's HMOs and who they're managed by and
ring them in the area. Or you can Google it or you can ask referrals. Or you can go in
High Street, but just make sure if you do finding a High Street letting agency, they
really do have experience with HMOs. Ask them how many current HMOs they've got in their
box and get a real understanding if they know what they're doing or not.
Samuel: I've just into a High Street and I've just said to them, hey do you know any letting
agents in this street that deal with HMOs and specialised HMOs and they've said, to
do so I'll go in and ask. Just ask the question. Put all your cards on the table. So let's
see.
Samuel: I've just spoken. They do manage HMOs but then why they saw we had a camera they
got a little bit... even though the camera wasn't... what happened Nick?
Nick: I don't know. As soon as told them that we were doing a documentary.
Samuel: I said, have you got time to talk about HMOs? And they said, yeah absolutely
come and sit down. And then I said, do you mind if we film? And then we literally got
thrown out. They were just like, nope nope. Please leave. I said, I'll only film me. You
know what, this is the stuff that sometimes we have to go through as camera people, documenting
the journey. But it's all good.
Samuel: Anyway, going to letting agents and asking them. This is why it's sometimes better
finding HMO managers on Spare Room. Hunters, they don't do HMOs but they're all friendly.
In fact, the manager there. Said that he'd read my book and he was a big fan. So that's
kind of cool. Did you get that on video, Nick?
Nick: I didn't unfortunately!
Samuel: Dude! Let's try Jayman. See this is it, man. This is what you have to do sometimes.
I've got properties in Birmingham, so I know how they work. What's the demand? Do they
rent out quickly or do they take a while?
Estate Agent: The demand is very strong.
Samuel: Is it? So if you put five rooms on that road, would you expect them to go out
weeks or months?
Estate Agent: Five rooms inside that property at the moment. I know on this street down
here we've got one with six rooms. And four of them have gone between Christmas and mid-January.
Samuel: Cool. Thanks, James. Take it easy, man.
Samuel: So just been to the estate agents. James told me that the demand is really strong
in Lichfield. You're going to get between £400 and £450 very easily per room, which
is great. And he said that the rooms rent out really, really fast here. So, I've actually
gone to all these different agents in Litchfield. I actually have my own Letting agency, so
if I was doing it, I wouldn't need to do that. But I'm doing this to show you what you need
to do.
Samuel: So Step 5, to conclude things, is how much are you actually going to put down
in the first place? I have a rule that says £30,000 pounds per lettable room is about
as high as I'll go. For a four-bed HMO, £120 is about as high as I'll go. If it's a 5-bed,
I'll go up to £150. In Lichfield, is that possible? Maybe. If you know how to get below
market value deal, which I do on some of our other videos. You can check those out. So,
that's basically it. Make sure that the properties are in good condition when you rent it out.
There are at least four lettable rooms. There's an HMO management company in the area. You're
buying it at the right price, and lastly, it's very close to the city centre like these
properties are.
Samuel: I hope that's been helpful. Don't forget to stay tuned for our next video. God
bless. Peace out.
Samuel: I hope you enjoyed that. The stuff we put ourselves through. You know what, bringing
this guy around with me in Lichfield with this big thing? People freak out, man.
Nick: They don't like it.
Samuel: When people see there's a camera, they think you're there to like, trip them
up and expose them to some secret documentary. Most people that are successful in property,
they keep their cards close to their chest. They're like, people say, how do you do property?
I teach you guys everything. I put myself through this. So you better friggin subscribe,
man. You better friggin ... going around with this camera, it is not easy. But I want you
to see how it's done in the real world. So subscribe right now. I'll see you next time.
Thank you so much.