CASE STUDY: 4 BED MINI-MO, North East
This one is just a bit too cute, we were really pleased how this one looked when it hit the room-let market in March 2019.
Sooo... We often bang on about H-M-Os (houses in multiple occupation), so what is a MINI-MO?
A mini-mo is a small HMO - a house let on a room-by-room basis to 3 or more people, but less than 5, with some shared communal spaces.
A mini-mo doesn't typically require a HMO license which makes life a wee bit simpler (always check with your local council's HMO officer).
We love a cheeky little mini-mo, there's a lot of potential stock on the market and done right the cashflow can be epic.
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Let's start with the numbers on this one:
Purchase price: £86,000
Refurb: £27,500
Done Up Value: £130,000 (we just got this agreed by the bank, cha-ching!)
Rent: £1,700 per month
Rental yield: 23.7%
ROI: 51.4%
Now that is an ROI that gets our attention!
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A couple of things stood out for us on this project:
A mini-mo is a great way to test HMO demand
The area in which we bought this property was untested for room-let demand, very few rooms were available on the market and what was available was drab and spiritless.
However it did meet our criteria for a promising HMO area so we chose a property that not only worked as a mini-mo but also washed its face as a straightforward buy-to-let.
This meant that if we struggled to fill the rooms, we could quickly switch up our strategy and let the property in its entirety on a single AST and it would still cashflow a treat.
We like a little bit of risk now and then, but when it comes to investing, with both our money and other peoples' money, then we take as safe an approach as possible!
Less is (sometimes) more
When we bought this one it was a 3 bed, 1 bath property and we turned it into a 4 bed, 3 bath. With a little bit of jiggerypokery we probably could have squeezed another bedroom out of the property to further increase cashflow and ROI, but we chose not to.
There were a few good reasons for this:
1) Whilst an extra room would have increased the cashflow (about £3,300 per year if room filled consistently) it would also have tipped us into the licensable HMO category. Apart from additional HMO regulation it would also have introduced a £900 annual HMO license fee, which reduced the attractiveness of the cashflow vs. the headaches it could potentially bring!
2) Extra stress on the communal areas - the kitchen of this property isn't massive and for us didn't feel like it could comfortably suit the needs of 5 tenants living in the property.
3) One of the biggest costs to a room-let landlord is changing tenants as this incurs a tenant find fee, a void period and the ever-present risk of a personality clash between a new tenant and the existing ones. To our thinking, over-crowding increases the risk of tenants only staying in the property short-term - I for one wouldn't want to be squashed like a sardine in my home!
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Anyway, some snaps of the before and after, here you go!
This is what it became:
Proper Lush as they'd say in the North East!
Got any questions on the above? Drop us a line to info@capstonefox.com or give us a call on 07546 820 941.