How to compare HMO rent with a supported living lease
One of the things that can be very hard for property investors to get their head around is how to evaluate the rent on a supported living property. In comparison with expected rent on the open market, supported living rent is sometimes lower. But the overall income may be significantly higher. Why? The terms of the lease are different. Here are some common benefits to landlords of supported living leases:
- Voids covered by the care provider
- Maintenance is often covered by the provider
- No management fees
- Longer lease terms
- All bills covered by the provider
- Often damages and wear and tear will be covered by the provider
Many new property investors are attracted to the HMO model as a quick way to bring cash flow into their property business. Sadly HMO landlords often find that their income from the property has been significantly less than they expected, and the time they have needed to invest in managing the property has been higher. And in times of financial uncertainty like we have experienced recently, things can be even more volatile.
Lets look at an example of how income can be more, even though the rent figure is lower.
The market rent of this example HMO is £2500 pcm, and a provider is only offering £1500pm, so far this doesn’t look like a great deal. But lets look at this in a bit more detail, bearing in mind this will be for an average of 5 years (yes we have many care providers offering 5-10 year leases and they can be even longer).
Rent PCM: £2,500
Council tax: £180
Maintenance (at 5%): £125
Agency fees (15%): £375
Voids (5%): £125
HMO net income: £1,355
Supported living lease
Rent PCM: £1,500
Maintenance (at 5%): £75
Gateway fees (2.5%): £37.5
SL net income: £1387.5
Net monthly increase: £32.50
Net annual increase: £390
You can see the investor is NET better off by £390 per year, and if set up correctly this could be as close to passive property income as you can get, with no voids to worry about and most of the internal maintenance taken care of. Over the length of a 5 year lease this equates to £1,950 more income. On top of this the opportunity to help someone within your community who really needs a high quality home is invaluable.
I’m the first to admit this can be tricky to set up. You’ll need a specialist mortgage product, insurance, and help to find the right care provider for your property. The whole process can take time. But for me this is a no brainer and such a worthwhile addition to any property portfolio.
Supported Living Gateway is a members only property portal which connects property investors with care and housing providers. All members get access to a deals analyser to quickly compare supported living rent. To see all the membership benefits and sign up head to our membership page for property investors.
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