Finance > Real Estate > Planning to increase your property rental income via room rental?
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Article rating : 0.00, 0 votes. Author : Terry Lucking
At a time we are experiencing higher mortgage interest rates and higher annual rent to annual mortgage ratios it is not surprising that many investment landlords are considering letting individual rooms as a strategy for boosting income from a property.
I recently met a landlord who has an ex council 3 storey property in a council estate to the west side of Peterborough City centre. The landlord had asked for my advice as to how he could turn this loss-making venture around.
Firstly I needed to understand the basic set-up and finances.
The property has 7 rooms for letting. Some have small kitchen areas and a couple have ensuite shower rooms. 4 rooms share the main kitchen and 5 rooms share the main bathroom.
The landlord uses the services of a professional accredited letting agent (not my agency). The landlord does not live in the area.
If all rooms are let with no defaults in rent this property has the potential to generate a gross annual rent of £23660.00
The gross rent this property generated from January 1st 2007 to December 31st 2007 was £12040.00, just 50% of the potential maximum. This was a major shock and disappointment to the investment landlord.
The landlord accrued annual losses of £6441.00. Put it another way he had to use £6.4k his own personal money to operate this property. So much for an investment!!
What went wrong you may ask?
o The property was and is still managed by a reputable agent
o The agent has invested many hours of additional time (unpaid) visiting the property dealing with reports and complaints from other tenants and neighbours
o The landlord felt the agent did not spend enough time visiting the property although they visited every 3 months
o The agent did not manage the landlords’ expectations well. They should have offered to carryout weekly visits for an agreed additional fee. But this would have added to the LOSSES!
Why was the income so low?
o Messy uncaring tenants put off viewers from applying to live in this property; resulting in periods of empty rooms with no rent
o Rotting food in the kitchen; often left in the cooker
o Unwashed pots and pans
o Clothes left soaking in the bath
o Bin bags with rotting food left in the house
o Bin bags and empty beer bottles litter the garden
o A dirty greasy water mark around the edge of the bath you could probably make a candle from
o A whole in one of the communal doors
o Light bulbs missing to both landings (probably replaced dead light bulbs in tenants rooms)
o In summary the communal areas of the property looked awful and smelt disgusting
The landlords’ expenditure during the 2007 year was a colossal £18,481.00 (78% of the maximum possible income!) made up by;
o £2950.00 on legal expenses obtaining vacant possession
o £1985.00 in letting and management fees
o £560.00 on HMO licensing
o £3697.00 on energy and local council tax
o £387.00 for insurance
o £242.00 for safety testing
o £4700.00 for mortgage interest
o £3960.00 for repairs (many believed to be caused by the tenants)
The landlord quickly got the picture that the management of HMO’s is not straight forward. Properties in poor areas are best managed by someone who can visit weekly to collect rents. Whilst at the property they can check on safety issues, fire hazards and rubbish. It is unlikely he will want to pay his letting agent to visit weekly; they will probably want to charge c30% fees, doubling these costs.
So if you have rooms to let in troublesome areas I advice managing them yourself and keep the lid on the pressure cooker! Unfortunately the landlord does not live in the area and so could not do this.
Managing rooms in less troublesome areas is a job a letting agent and remote landlord can do well.
The alternative strategy that I advised the landlord to take was to convert the property into studios or very small open plan living areas. Just like managing flats messy uncaring tenants are therefore isolated from other occupiers in the block/property and do not put off prospective new tenants.
Landlords should work with local experts in renting rooms in Houses in Multiple Occupation (HMO’s) who will often free advice for anyone planning to enter the market or anyone already in the market.
Terry Lucking is the Managing Director of www.24-7lettings.com who are experts in this sector of private rented dwellings and especially Houses in Multiple Occupation. If you would like additional information please call Terry on 01733 574060 or 07801 865780
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