How to benefit from Article four with HMO’s – Property Investors Crash Course.
Who is interested in maximum cash flow and maximum capital appreciation? Samuel leeds explains article four and why it is not always bad news for investors.
An average buy to rent property gives its investors a profit of around four hundred pound per month. A HMO is a house of multiple occupancy and each room also gives its investor a profit of around four hundred pound per month, meaning a four bedroom HMO would increase an investors profit fourfold. Samuel tells his students that most of his cash flow is generated by HMO properties. The massive increase in ROI (return on investment) within HMO property means it takes far fewer properties to reach financial freedom, than it would using single let agreements.
There are two types of legislation relevant to HMO’S.
- Licencing – If a HMO property has five or more bedrooms, a licence is required. A licence is very easy to obtain where a property is fit for use.
- Planning – A HMO property that is in an article four area or a HMO property that has seven or more bedrooms requires planning permission. Planning permission is very hard to obtain.
Article four areas are zones created by the council that require planning permission in order to change the use of a property i.e. from a single let to a HMO. A few years ago there were only a few small areas of the country in which article four legislation was in place, however over recent years the areas under article four legislation has increased dramatically.
Article four is to be introduced into Doncaster in October of this year. Samuel has recently purchased a property in Doncaster and goes on to explain why he is very happy and excited about his purchase. If a property is used as a HMO before the date in which article four is introduced, that property receives grandfather rights meaning it has automatic planning permission and can be used as a HMO. Samuel paid ninety four thousand pounds for this particular property, the introduction of article four will mean there is fewer competition and higher demand for HMO'S in the area, pushing up both the value of the property and the price of HMO rent in the area. Another of Samuel's properties located in Wolverhampton was bought for one hundred and thirty five thousand pounds and just two months later after the introduction of article four the property value rose to one hundred and ninety five thousand. This is a great example of maximum cash flow and maximum capital appreciation.