In the current market conditions it is vital that you should only invest in property that makes a positive cash flow. Although we expect property prices to rise in the long term, it is a good time to buy “As if” prices were never going to rise again! This will make sure you focus on only buying good cash flow property.
Thanks to the use of Purchase Lease Options, we can now gain significant cash flow from a property that we do not own or even have a mortgage on. The very best type of property to acquire on a Purchase Lease Option is a property suitable for multi let which the current owner is trying to rent out (usually unsuccessfully) as a single let property.
This is a very profitable strategy that I normally only share with delegates on my 12 month Property Mastermind Programme however I have decided you give you an outline of how you can make this strategy work for you >>
A mulit let property is one where instead of renting out the entire property to one person or family on a single AST (Assured Short hold Tenancy) you rent out individual rooms to people such as students or young professionals. They each have their own bedroom and then share cooking facilities, living room and bathrooms (although some rooms may have en suite private facilities).
Usually the landlord pays for all of the utility bills so that each month the tenant only has to think about paying one bill rather than worrying about their share of the utilities which can be a real hassle in a shared house. The idea is to make it really easy and convenient for the tenant such that they want to stay in the property. Also it should be cheaper for tenant than it is to live in a shared house than it would be for them to live on their own in a studio flat.
I have a number of these Multi let properties in Birmingham. They are large Victorian houses that would probably only rent for £750 per month as a single let. This is not really enough to cover the mortgage and insurance and so you would not buy this as a typical buy to let property, however as a multi let it is a very different matter.
The rent you can achieve on a multi let room depends on the size of room, facilities in the property and of course the direct competition in the area. The average rent I achieve is now about £350 per month, per room. So for a house of five people, the gross rent is £1750 per month that is £1000 more than a single let property.
I don’t quite understand why some investors don’t do multi lets given this great cash flow. I think the main reason is that they think it will be lots of extra work. Whilst I agree that it may be more work than a single AST you get paid very well for it and beside you can get an agent to do the work for you. Most letting agents are not prepared to look after multi lets but there are some that do, you just need to know how to find them.
Remember you don’t get all of that extra rent. You do need to pay the bills which usually cost me about £350 per month. After paying the bills, mortgage interest and insurance I usually make about £600 per month profit when the property is full.
At this amount of profit per property how many would you need to replace your current income? Most people would only need between 3 and 8 of these kind of properties to be financially free! With the correct knowledge and application of that knowledge you could get one of these each month. How would you feel if six months from now you are financially free?
With the current low interest rates each of these houses is making me more than £1000 profit per month! I don’t expect this to last, as interest rates are bound to go up in the next two years but it is great cash flow right now. As a word of caution I suggest you don’t spend all of the cash. Put some of it aside for a rainy day.
Occasionally you will get an empty room due to the transient nature of your tenants but you need to stay on top of any voids to make sure you fill them quickly. All the time one of your rooms is empty you are throwing away some of your profit. You should never really have more than two rooms empty at any one time as long as you have purchased in the right area and stay on top of your advertising for new tenants.
I still think this is less risk than a property you rent out as a single AST for which you have to cover the mortgage payments etc when you have a void period.
Another factor which puts landlords off multi letting a property is the introduction of Mandatory Licensing of House in Multiple Occupation (HMOs) a few years ago by the Government for multi lets with more than 5 tenants on 3 or more floors. The legislation has been interpreted in different ways by different local councils so you need to check with them to make sure you meet all requirements. Don’t let this put you off as it is just paperwork really.
Anyway back to the strategy and how you can make some great cash flow within the next four weeks.
Here is an outline of the steps you need to take:
1. Speak to the Housing Department of your local council to understand the requirements for HMO Licensing
2. Look on rental websites to find out what an average room would achieve in a multi let in your area, and maybe place some dummy advert to test the demand.
3. Look for suitable larger properties in your area which are up for rent (and or sale) that are currently empty.
4. Approach the owners to see if they are interested in a long term let (5 years) or even better a 3 to 5 year Purchase Leas Option
5. If the owner is interested then double check the figures, make sure the property is in the correct area and start to advertise for potential tenants.
6. Whilst you finalise the deal with the landlord get permission to show potential tenants around such that you have some tenants ready to move in as soon as you have to start paying the owner the monthly rent.
7. Once your first property is set up like this repeat steps 3 to 6 to get the next one.
The best time to do this strategy is over the next six weeks. If a landlord has a property that has been empty for a few months then it is unlikely that they will fill it before Christmas, so a great time to stick a deal with them. This means you can get the property ready for the start of January which is historically a great time to find tenants as many people start new jobs and move around then.
This is of course just a brief outline of the strategy which I explain in depth on my Property Mastermind Programme. However I will also be explaining all the detail behind the strategy at a special one day options event I am hosting with Mark Jackson on Sunday 8th November in London. Mark is the most experienced investor in Purchase Lease Options in the UK. For more details about this special event just click here:
I hope has been useful for you.
Founder, property investors network