Whichever way round it is, I generally try to avoid watching this genre of TV programme for the simple reason that I work long hours anyway and this would be like taking work home with me. But the other day, in a weak moment, I found myself watching one about the older couple who, needing to supplement their pensions, bought an eight-bedroom HMO (House in Multiple Occupation) in a generally high-yielding rental town (aka economically challenged).
Now I know these programmes have a certain stereotype: the bad tenants are really bad, the wicked landlords are the devil incarnate and they're obliged to show the extremes, otherwise who would watch them?
Would any of us watch a show called Nice Landlords and Bland Tenants? No, we'd switch straight over to Jeremy Kyle. However, to enable the producers to show a 'victim' they often gloss over the self-inflicted elements of their victimhood.
Take our Mr and Mrs Naïve (not their real names) who purchased the house in Gravesend in Kent (the real town) and then opted to self-manage. Buying an HMO of any sort takes a brave person with a high tolerance for risk who is physically fit and mentally tough enough to manage the pitfalls of this type of property investment.
Pensioners, irrespective of their physical/mental agility are unlikely to gamble knowingly with their hard worked-for pension pot. This is exactly what the couple did. They undertook the initial lettings unaided, 'managed' the individual tenants themselves and, guess what – oh, you already have – they ended up with £11,000-worth of rent arrears, an utterly trashed house plus the worry of going to court to obtain a possession order.
Come the day of reckoning, when they went round to take possession, there were still tenants in situ and, along the way, they had acquired a particularly nasty squatter who was very intimidating indeed.
Long story short, they eventually took possession but not before we had witnessed the pensioners' lives being almost ruined by the whole sordid experience. I bet when they first purchased the house, they were thinking 'what could possibly go wrong?'. Unfortunately, they found out the hard way and suffered a brutal personal ordeal to boot.
During the episode, Mr Naïve, in almost a throwaway line, said they had cut corners to save money by doing everything themselves. Too blooming right they did – but, in truth, it all went wrong when they decided an HMO investment would meet their needs.
You have to wonder whether they actually took any advice at all? Or was it the case that a very nice estate agent with a challenged property on the books convinced our hapless couple that they could make £3,000 a month from this very sound investment, which would represent a yield of a gazillion per cent on the pur chase price.
If they had come to see me, I would have analysed with them their needs, their goals, their risk appetite, their management capabilities and doubtless would have steered them towards buying something which best matched all of these.
But, of course, they always wanted to 'save' money, so they were never going to use a specialist letting agent/property manager anyway.
This will have led on to their second big mistake, and you may be surprised to hear that I think they were right to attempt to self-manage rather than employ the services of an agent. I'm of the personal opinion that very few agents are actually much good at hands-on management of HMOs – and this is what is needed if you're to stand a chance of making a good net profit from them.
In my view, they can be quite financially rewarding compared with a single let property but they have to be run on almost military lines: the communal areas need to be inspected at least twice weekly, the bedrooms every two to three months, cleaning has to be undertaken scrupulously, routine maintenance including gardening attended to on a timely basis, and utility usage carefully monitored and controlled.
Add to hat a top-notch inventory of condition in respect of each new tenancy with a formal check-in and check-out, plus a hefty security deposit.
Even with all this, you'll need to be very thick-skinned and completely dispassionate when it comes to any rent arrears.
No, where I think our Gravesend investors went awry is that they didn't professionally reference their tenants. With all the high-quality reference tools a good letting agent uses these days, it is false economy not to have this vital aspect of the lettings process undertaken properly. This doesn't just apply to HMOs, it's pertinent to all lettings across the board.
Let me give you two examples of how in the last week our net caught two would-be tenants who had applied to us to rent our clients' properties.
The first told us they had no issues with their credit history, but when we ran the credit check part of the reference process, it turned out they had an undisclosed County Court Judgement against them running into several hundreds of pounds.
The second one we ascertained had not paid rent to her previous landlord for nearly a year.
Both applicants had come across as being very plausible and both had passed our pre-referencing checks. Had we been Mr and Mrs Naïve, they could both easily be tenants in situ by now and on their way to building up substantial rent arrears.
This column is sponsored by Martin & Co. If you'd like to know more about how the company approaches tenant referencing, give Mike a call on 01603 766860 or visit www.martinco.com/estate-agents-and-letting-agents/branch/norwich
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