How do I maximise my profit in an HMO?
If you’ve got your first HMO up and running, you’ll know that the first 9 – 12 months are what I call the ‘teething period’ . Your bills will be all over the place, you’re still working through all the costs of the refurb, and your tenants are still settling in. There’ll be snags you hadn’t predicted, and your agent will be frustrating!
At this point you might think ‘was it all worth it, or should I do Serviced Accommodation’?!!
HANG ON IN there! Is my advice – it gets much better in year two. You haven’t yet really benefited from all that hard work you put in.
Here are some suggestions to help you maximise your profit after the teething problems have died down:
1. Create key performance indicators that you regularly assess, such as cashﬂow, profit and loss, occupancy rates, time on the market before rooms are filled, your monthly cost of advertising, your time input, monthly maintenance costs and yield. Some of these KPIs can be analysed annually, others quarterly and some monthly. Keep an eye on your business statistics so that it is controlled, measured and tweaked where necessary.
2. If you are using the skills and time of other people, either as contractors, service providers (such as a VA or PA) or employees, ensure they report to you their key results areas (Read Life Leverage by Rob Moore for more on this) on a weekly basis. With this information you can then identify where time and money is being lost and where their skills are most useful and effective. And remember Sheryl Sandberg’s famous words when it comes to choosing a member of your team – ‘Hire slowly, fire quickly’.
3. Each time you readvertise a room, consider adding a few pounds per week increase to the price. A small amount will not affect your enquiries, but it will increase your bottom line.
4. Collect rents on time and regularly check them with your online accounting system. Each time you create a new tenant entry, you can create a recurring invoice (which doesn’t need to be sent to the tenant). This then allows you to reconcile with actual income in your business bank account. Even a few days of late payments per month will impact your cash ﬂow.
5. Create a late payment policy. Although you cannot charge fees to set up a tenancy, you can charge for chasing rent and late payments. Decide at what point you will go down the route of evicting a tenant, and keep abreast of the legal process by becoming a member of an accreditation scheme such as the Residential Landlords Association or National Landlord’s Association (who are due to merge soon anyway). They have helpful guides and legally compliant forms and letters you can use. Having a policy means you can remove the emotion from the process and outsource this to a member of your team.
6. Assess your regular outgoings such as utility bills, insurance, broadband and mortgage costs. Reducing bills, even by 5–10% per annum will compound your cash ﬂow and profi ts. Does your cleaner need to come weekly or could fortnightly be enough? Are all the bulbs in the house LED?
7. Take regular meter readings to assess usage. If bills are rising fast you need to investigate and identify why. There are a number of devices available that allow you to control the heating and temperature (often the largest jump in bills is due to additional heating. Tumble dryers are a common culprit for rising electricity bills). Are there appliances that could be linked up to a coin-operated meter and cover the cost of use?
8. Keep an eye on new technological developments in the HMO industry. Whether it is a new piece of software that can help notify you of late rent payments or an app that can control your heating remotely – use technology to systemise your business, thus saving you time and money. We have a phrase ‘low-cost and no-cost’ which helps us evaluate the cost v return of any app or product.
What other ideas do you have or have you used to grow your profits year on year in an HMO? By reducing your outgoings and increasing your incomings, your profit will grow exponentially.