An increasingly popular way to boost property cash flow with the current financial market turmoil is to venture in to Houses in Multiple Occupation (HMOs) or general multi-lets. In fact, I wouldn’t be too far wrong if I was to say that unless you had properties with a low debt to equity ratio, then this is probably the only way you are going to generate any decent cash flow.
What is going to generate you the greater cash flow? A three bedroom house let out at £595 per month, or the same house split in to four rooms, with each one being let out for £260 per month, thus generating monthly income of over £1,000!
However, as an increasing number of investors start to plunge into this market, you would be wise to take note and not to put all your eggs in to this one basket!
Will we see another apartment style plunge in coming years?
Cast your minds back about five years when apartments were the thing to buy and every investor was busy buying these up all over the country. It is a classic case of supply and demand where it was obvious that at some point there would be too many apartments on the market and prices would no longer increase.
Now, the potential issue that HMO and multi-let investors could face in the coming years is the supply and demand issue. But this time, there will be so many rooms available for let on the market that landlords will no longer be able to get the lucrative rents that they are receiving now.
This means that you may have to start dropping room rents and could ultimately end up in negative cash flow.
So what should you do?
More and more investors are moving to HMO and multi-let properties and this will continue increasing for the foreseeable future. After all, it is the only way to generate real good cash flow.
However, when investing make sure that you do not just invest with HMO and multi-lets in mind. Also consider what the rental income would be if you were to let the house as a single unit rather than individual rooms. Make sure you invest in property that can give some sort of cash flow if it also let out as a single house.
That way, if the market for HMOs and multi-lets does turn (which I am sure it will at some point) you can quickly switch back to letting a single house and still maintain some kind of cash flow!
