How my HMO has gone from cashflow positive to deep debt :(

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    #16
    Originally posted by sjcollett View Post
    MTG thanks for your comments. I will dig out the EPC and reassess the property to see what can be done within a reasonable budget. I would not say the place is shabby, it's in a good location and is to a good standard. My fear being, last year the area saw a 10-20% drop in rents and a lot of supply on the market which meant an increase in voids. The supply has lessened a bit now, but if people moved out I fear I would not be able to get the same rent for the rooms - which ultimately means I start on a downer. (i.e. where i get 400 per month I think it may now be 350 per month)

    Thus the predicament seems to me that I have to accept I am now taking less rent (if you view the increased utility bill share as part of the rent) to enable me to keep the current tenants (or face the prospect of them leaving and me having to get new tenants who will ultimately pay less anyway as the market has moved downwards.

    Does that make sense? Can you see my quandry?

    Although I absolutely agree with you that going forwards this is not an ideal situation and one which I fear leaves me exposed to energy prices hikes (which I have already learnt!). I am just unsure of what to do for the best.
    Sounds as though you are between a rock and a hard place. I am assuming you are drawing £400 per person per month - is that right? It does sound on the expensive side for a single room in a property shared with strangers - is it in London? In Newcastle or Leeds, for example, tenants pay between £45 and £70 for the same thing (including bills) - and you say that you are t the top end price wise for the market in your area. So in some ways, I can understand why your tenants do not feel much conscience about saving your electricity.

    If the rental income does not cover the mortgage repayments + energy bills on the property, you may as well accept that it was a bad business decision in the first place and get shut of it. It does not sound as though there is much potential for improving the rental yield even if you make it more energy efficient. You say on your user profile page that you have lots of properties, so maybe this is just one which you will have to subsidise and make a loss on for a while (in the hope the market improves?) or sacrifice completely.

    Is there any mileage in returning it to a 3 bed family house - how much would that bring in? At least they would be paying all the bills and it would be lower maintenance than young sharers.

    You have probably worked out that there is no magic bullet here.
    'Pause you who read this, and think for a moment of the long chain of iron or gold, of thorns or flowers, that would never have bound you, but for the formation fo the first link on one memorable day'. Charles Dickens, Great Expectations

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      #17
      Thanks for your comments. Fortunately (even with the bills) it does still make a profit. Although I am hugely concerned about the energy bills - esp. when you have been kind enough to share how much you pay on your property. I think that is where I may have gone wrong - I don't have another similar property to compare this to and to be frank, I find the consumption to be ludicrous!

      I have now dug out the EPC and will visit week after next with a view to upping loft insulation and looking into cavity wall. Not sure about the boiler upgrade as it's a floor standing behemoth (Thorn M80).

      You have given me much to think about and good advice so thank you again I do appreciate it

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