Photo by Ixana Property

The housing market has had its fair share of challenges in recent years; COVID, inflation, and interest rate increases have raised the costs of development and maintenance, significantly increasing monthly mortgage payments. While the market has remained resilient, it’s fair to say that profit margins have been eroded during this time.

In 2023 alone, 83,000 buy-to-let mortgages were approved, with the average two-year fixed rate reaching 6.04% and the five-year fixed rate at 5.65% by the end of the year. In 2021, the average buy-to-let mortgage rate in the UK was around 2.34% for a two-year fixed rate and 2.64% for a five-year fixed rate. This means a 5-year fixed mortgage of £200k would have increased from £453 per month to £970!

While we can’t impact interest rates, we can take steps to protect your margins by reducing voids and increasing rents. Here, we break down the three key areas of focus to maximising rental returns.

Design

A good HMO starts at inception. The space should be well designed with inviting social and communal areas. Bedrooms should be well planned, with double or queen-size beds as a minimum. When designing bedrooms, storage should be considered, along with providing desks for study or homeworking. We love to provide high-end touches like picture shelves and statement chairs in larger bedrooms. Each bedroom features a smart TV so tenants can feel comfortable in their rooms as well as in the communal spaces.

We provide dishwashers, washing machines, and tumble dryers – the dryers help reduce condensation and damp in the property and improve aesthetics, as tenants don’t leave wet washing hanging around in communal areas.

Our kitchens have ample cupboard storage space and at least two fridge/freezers for six tenants.

We always aim for a bathroom between two tenants as a minimum, with high-end features like freestanding baths and vanity units – all of which can be sourced for not much more than the basics and make a big difference.

Consider “wow” factors to make the house stand out, such as a kitchen island, a window day bed where there is a large sill, or even something like a foosball table.

So, what impact does this have? Our properties look great – the attention to detail is evident, which elevates the rents. Tenants are proud of their home and keep it looking nice. Therefore, we always aim to be in the top 5% of the market in terms of rental price.

The smaller touches, such as adequate cupboard and fridge space, create a much more harmonious living environment for our tenants, which ensures they stay for the long term, reducing voids.

Finding Tenants

If you have followed step 1, it puts you in a much stronger position when it comes to finding tenants and standing out from the crowd.

When marketing the property, it’s important to get great pictures of the property while it is empty. You can employ professional staging companies, photographers, and 3D tour companies, or you can do this yourself. But your property will never look as good again, so putting in the time at this stage is really valuable. Having great marketing pictures will help you in the long term. We rented an entire property during COVID using just our 3D tour. It’s also ideal for international tenants who want to view a property remotely.

Student groups often sign contracts around nine months before their tenancy starts. The flow of student groups means we have zero voids on these properties, as one group moves out on 30th June and the next group moves in on 1st July.

Student groups also sign joint and several contracts and require guarantors, meaning we have always received our rent.

For professionals, larger groups are rare, so renting to individuals at shorter notice is more common. Aligning your rental periods to peak demand (e.g., September) creates a cohesive house without tenant churn and ensures the greatest demand when going to market. For individuals, it’s much more important to be proactive in finding tenants, even if you have an agent. SpareRoom is a great website to find prospective tenants.

When finding individuals, it’s important to create a cohesive house – this reduces the risk of issues during the tenancy and requests to leave early.

Service Offering

Finally, once you’ve secured your tenants at those top rents, you need to ensure you’re offering a service to match. We provide high-spec fibre broadband in all our properties and install CAT6 cabling when completing a refurb. Working and studying from home, gaming, and streaming services in a large household put a huge demand on the Wi-Fi, so having business-grade connections makes for happy tenants.

Being proactive and responsive to maintenance issues not only ensures a quality relationship with your tenants, but early intervention often reduces the risk of bigger repair costs later on. For this reason, we also provide a communal cleaning service once a month. This ensures that bathrooms are free from mould and potential issues are identified early.

Providing a great service makes for happy tenants; we often have repeat tenants and new tenants referred by existing ones.

When selecting tenants, we have the pick of the best tenants. We conduct comprehensive referencing and don’t feel pressured to take a risk on a tenant we’re concerned won’t mix well or may be financially unreliable. This, again, ensures our rent is always paid on time and in full.

All of these steps, in our experience, have meant we have very few tenant issues. Our house relations tend to work well, with minimal personality clashes, and we can command top market rents with tenants who are reliable and enjoy renting with us.

About the Author:

Tim and Charlotte Hockley of Ixana Property are experienced HMO property investors based in North Leeds. They began investing in HMOs in 2007 and now share their expertise with other investors and landlords through their investment opportunities and rent-to-rent offerings here.