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HMO’s – how cash flow positive ended up in DEEP debt!

February 4, 2010

As part of my property portfolio I have a couple of HMO’s (Houses of Multiple Occupation) to bring in some extra cash flow. A  HMO means that one house/flat can be shared by a number of different people, each with their own tenancy agreement and each with their own room. HMOs are usually fully furnished and people pay for a “room”. They then share the communal areas such as the kitchen.

As part of the ‘shared’ aspect of HMOs, bills are also shared and are usually included within the rent. That means the landlord is the one footing the bill for the council tax, heating, water etc. Now that may sound like a big ask – but given that a typical 3 bed property can be shared by 4 people that means you are getting increased rent because of the shared arrangement. HMOs are also attractive in terms of the double digit yields they offer investors.

HMOs can be very lucrative – but it is critical to get your bill spend right.  That means working out how much the property will cost to run (in terms of energy and utlity usage) and add that onto the rent you charge. While it would appear I have estimated the tenant’s energy consumption correctly and budgeted for it EON haven’t…in fact it turns out that for the past 18 months I have been paying less than what I should’ve (this is despite me providing quarterly meter readings and them adjusting the bills upwards)…but never enough so it would seem…EON have just informed me that I now owe them £1800!!! They’ve been very understanding – but then they have now taken an upfront payment of £400 and increased my direct debit to £530 per month!

Moral of the story – do your meter readings monthly and make sure you are paying enough to cover your consumption bill. I left it up to EON’s computer system to sort the bill, but they were not re-adjusting enough to cover the increased consumption.

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8 Comments leave one →
  1. February 4, 2010 10:20 pm

    Hi Sam I think Vanessa and Nick have regular quarterly meetings with HMO tenants to review things like energy consumption. If someone else is paying the bill tenants have no incentive to be sensible (heating on full blast, all windows open!!!). If there is a clause in the AST which says rent can be increased if bills rise above a certain pre-determined limit, this can cause them pause for thought. There’s usually one particular culprit and the others usually put pressure on them to sort it out – so I’m told.

    Rich

    Fed up with HIGH PROPERTY MAINTENANCE COSTS? Follow my weekly blog at http://pimlico-flats.co.uk/blog/ and go to BLOG HOME at top left to see the latest posts.

    Trading as greenlandcarpentry.co.uk and Absolutely Brilliant Properties.

  2. February 25, 2010 8:02 pm

    Hi Samantha,
    You could get your local heating engineer to install energy saving controls that can limit the use of heating to set maximum minimum/maximum installer presets that the tenant can’t overide such as the Danfos RX1 wireless programmable thermostat.
    http://heating.danfoss.com/xxTypex/18091_MNU17472917_SIT54.html
    Also many of the latest combis also have installer adjustable parameters to limit temperatures etc.
    You really need a specialist for this type of set up, many plumbers just dont have the knowledge (or the patience)

    http://roomratecompare.com Searches 32 hotel websites at once to save you up to 70% on your hotel bill

    Eric

  3. April 11, 2010 10:49 pm

    I would say the moral of the story is not to include fuel in the rent as the tenants have no incentive to be economical.

    I only did it once and never again. I estimated reasonable fuel usage then added about 50% and added this cost to the rent. When the bills came they were double my already inflated estimate. That’s the effect of leaving the heating on with the windows open and leaving the lights on all the time.

    Luckily I was letting the house to a company for use of their staff and when I explained the situation they reimbursed me. But I vowed not to go down that path again

    • April 12, 2010 8:53 pm

      Yes – it seemed a good idea at the time! We are now looking at installing meters in the property!

  4. September 28, 2010 1:30 pm

    Same happened to me I have now installed coin operated tumble driers as I found they were being used middle of summer.

    I have installed motion sensors in all communal areas, kitchens and bathrooms and am looking at ways to limit the boiler use.

    Darren

    • September 29, 2010 6:48 am

      Great ideas there – what are your thoughts on limiting boiler usage? we find if we reduce too much they start using electric fires….

  5. nick permalink
    November 22, 2010 11:45 pm

    hiya guys

    dittooooo

    I have the sma eissue NOW

    double digit HMO’s and the usage bills are going crazzzy

    i went and did a drive by last week
    on a HMO of mine @ 21:00

    all the lights where on
    heating was on

    and no one was in the house

    I was funning

    I am now putting measures in place to put it under control

    – locking the thermostat
    – putting push button timer lights
    – lowering the temptiture on theboiler
    – give all my tenants a written warning that if this not
    under control i will be charging them an extra 30.00 per month

    i have had enough of these non-caring spongers

    Watch this space…

    Warm regards,
    Nick

    • November 23, 2010 10:59 am

      Nick – I agree this is an issue which needs to be managed and monitored closely to make sure it works!

      Let us know how you get on – all the best

      Sam

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