Unsurprisingly, I often get asked, “How can I replace my income through HMO property investment?” The answer to this is going to be different for all of us. It really depends on what the income figure is that you need, but there are a number of steps that can get you started on the right foot.
Here we’ll cover nine important steps to help you replace your income through HMO property investment. These are all the ingredients that you need to consider and start putting in place. Read insights from my hands-on experience below or listen to the full episode on The HMO Podcast.
1. Figure out What You’re Looking for
First, start thinking about what your goal is. What does replacing your income through HMO property investment actually mean to you? Is it really an arbitrary income figure you need or does the cash represent something else?
We all have our own reasons why we want to replace our income through HMO properties, and most people I know are looking for freedom of choice – the freedom to make your own decisions on your own time and on your own terms. Replacing your income can give you that freedom.
2. Do the Maths
Next, figure out what you need to generate every month from property to replace your income. Once you know that, you can then start building towards that level of income. To figure this out, analyse your income and expenses. You may find that you could get away with less money coming in, and you could even become more tax-efficient through property investment.
Keep in mind that there’s a relationship between how much you need to be generating on a monthly basis and how much cash, equity or capital you need out there working for you, and what the rate of return needs to be.
Let’s say you want to generate £30,000 net a year. To generate this, you would need to have £300,000 worth of cash or equity at work at a 10% return. If you’re happy to settle for less of an income, then you won’t need as much capital or you won’t need it to be working quite so hard. Or if you need more revenue, then you’ll need to have either more cash, capital or equity working for you or you’ll need to achieve a higher return.
3. Figure out What You Need
Once you know what that take-home figure needs to be, start thinking about how much cash or equity you’re going to need to generate that rental income and figure out how much capital you’ll need to raise.
If you don’t have much cash, to begin with, then it will take you longer, or you’re going to have to make your cash and capital work harder. You’ll have to be more creative to generate the revenue you’re looking for, but don’t worry if you don’t currently have much cash or capital saved. I didn’t when I started.
4. Be Realistic with Timelines
Set a timeline for when you want to achieve your objective of replacing your income or having freedom of choice, and be realistic about it. If you give yourself a short timeline to do this, then you’re going to be under a huge amount of pressure. And there’s nothing more disappointing than having goals set out that are too difficult to achieve.
Cash from property is not something that happens quickly. It takes time to build, especially if you’re starting from scratch. You don’t want to set an unlimited target, but it’s really good to work to deadlines. It pushes you and keeps you accountable.
5. Don’t Quit Your Job Right Away
Try not to look at your current job as a reason why you can’t achieve your HMO property investment goals. Instead, look at it as part of the opportunity. While quitting your job would allow you to focus on building your portfolio, keeping your job gives you recurring income to pay your bills and can help you top up what you can invest into your property business. The banks also want to see this when you apply for a mortgage.
In the beginning, it might be hard to have a job and build a portfolio at the same time, but it will be worth it. Start thinking about whether there’s a way to transition from being employed full-time to part-time or whether you could move into a contracting role. This will help you start gradually spending more time on your property business, while still earning an (essential) income.
6. Get Skilled Up
Think about the experience or knowledge that you have or don’t have, and fill the gaps that are missing. Getting skilled up about everything you possibly need to know about investing in HMOs is so important. This is one of the best investments that you could make into yourself and your new business and it could help prevent you from making big mistakes.
If you’re just starting out in property investment, see if you can be mentored by someone in the industry. Look at case studies, and learn from other people’s experiences. Listen to podcasts, and use resources like The HMO Roadmap that provide knowledge, advice, and step-by-step plans.
7. Create a Private Finance Raising Strategy
It’s often difficult when buying a property to have the cash for the deposit and refurbishment. But, raising money can help you leapfrog those earlier stages. From day one, start thinking about raising private finance.
To begin with, consider raising finance from your inner circle of friends and family. Set out terms in a loan agreement. But before doing this, have a solid plan in place. Be cautious about borrowing anyone’s money. You need to know that you’ll be able to pay them back.
8. Consider Location Implications
Think logically about where you’re located and how that and local property values could influence whether it’s possible to get the return you’re looking for. You may either need to accept a lower return or raise private finance to allow you to even invest in the first instance. Or you may need to focus on HMO deals where you can genuinely add value to keep topping up your equity pot.
If you’re in the southeast of England, property values are generally higher and yields lower, so you could be limited there, particularly if you don’t have much capital. In the north, property values are lower, so you may find it easier to generate the returns you’re looking for there. But property is often about compromise.
9. Build a Roadmap
Start building a roadmap to replace your income. Making a plan will help you figure out what you’re trying to achieve and what you currently have in terms of resources and limitations. You don’t need to have everything mapped out yet but plan the first few steps. Then, you need to take action, even if it’s just small steps, to start putting these pieces into place.
Having all of these details nailed will allow you to take the leap and buy that first property. And once your first property is up and running, that cash flow will help you start working towards replacing your income with more HMO properties.
So these are the nine steps to help you get started replacing your income through HMO property investment! I hope this has empowered you to begin building your portfolio, so you can replace your income and have the time and choice freedom that you really want.
For more useful step-by-step advice on starting, scaling, and systemising your HMO property investment business, join The HMO Roadmap today! And if you’d like to get insights and support directly from experienced HMO investors, join us over on The HMO Community Facebook Group.
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!