property investors network

Let to Multi let Cash Flow Strategy

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.

Kind regards

Simon Zutshi
Founder, property investors network

12 thoughts on “Let to Multi let Cash Flow Strategy

  1. Ian Haith

    Understand the startegy most properties for let are often with agents who do the viewings etc so won’t give you the name of the owner!

    Is there a price set for the purchase or are you suggesting you babysit the owners mortgage or pay them rent similar to that for one family renting then makin the profit from the multi let. You havent made that clear.

    Regards

    Ian Haith

  2. Simon Zutshi

    Hi Ian,

    You can find the owner by looking on Landregistry and paying a small fee to get the deeds which will have the address of the owner so that you can send them a letter.

    To clarify you pay them the single AST rent they they want and then make the profit on the differnece between the mulitlet rental income and what you pay them + bills.

    I hope this helps kind regards Simon

  3. Lizzie Shearing

    Hi Simon
    This is the exact strategy I am trying to follow right now. What I was wondering is how you do let rooms individually without breaching the mortgage lending criteria that would already be in place on the property?
    Lizzie

  4. David GW Bartlett

    For a mandatory-licensed HMO in my area, the local council insists on fire doors, hard wired fire alarms, fire-boarding in the ceilings and walls.

    My question is: Do you undertake this work yourself on a purchase lease option? (If so, you surely wouldn’t be able to move people in on day one as you wouldn’t have completed the necessary works to get the HMO license). In five year’s time, should you decide not to exercise your purchase option, would you pay to revert the property back as it was?

    Also, which mortgage lender are you using? All that I’ve researched do not allow letting on an HMO basis (but I acknowledge that there must be some who do it!)

    It is currently possible to avoid mandatory licensing by staying under three stories and less than five tenants, however these rules look set to change also as I’ve become aware that the government intends to make properties with 3 or more tenants subject to planning permission.

    (Feel free to e-mail your response.)

  5. Simon Zutshi

    Hi David,

    Lots of questions so I will summarise a response here for you. First of all with regards to Licensing and Planning these are different matters. Currently in most areas a property with 5 or more tenants on 3 or more floor requires a mandatory HMO license. As the manage of a property which you would be with this strategy the license can be in your name it does not have to e the ownere of the property. Currently if there are 7 or more tennants you also need to get planning permission for the property to be used as an HMO.

    The new legislation coming in this April will allow local councils the authority to request that any residential property being turned into an HMO with three or more unrelated people living there may require planning permission. Having spoken to a number of councils about this the general feeling is that most councils do not have the man power to enforce this and so will probably only do so in areas where there are far too many HMOs which is having a detremental effect on the local community. I suggest that you check woith your local council to find out what they are planning to do in April.

    You could always let put four of the rooms in the property whilst you apply for the license and then fill the fith room once you have the license in place.

    This strategy will not work with every property. If there was substantial work required to a particular property I would not bother taking out the option. Also remember that this is done with full knowledge of the landlord and so you need to reach an agreement with them as to what the arrangements are after 5 years if you do not purchase it. If you hve made improvements such as add ensuite bathrooms I image the owner would be happy to keep those. If you use donwstairs receptions rooms as bedrooms I would not add ensuites as this may be strange if you event convert them back into a normal house.

    We have a number of people on my Property Mastermind Programme doing very well for this strategy. It works very well in the right area.

    I hope this helps

    Kind regards

    Simon Zutshi

  6. Sefco

    Hi Simon

    This is very interesting and I will definately find out more from our authorities. It isn’t common in Namibia, especially not in Walvis Bay, but this would be very good advice for future investors to look at.

    Kind regards,
    Sefco

  7. chris thomas

    you didnt say how you got around the banks no morgage lenders let you sub let properties i have one five bed house witch the concil recenty got wind off but i said i live there so they said no probs and left truth is i remorgaged that house told um it was for home inprovments but used the remorgage to buy the house i live in now which i have filled with tennants mutch to my girl friends anoyance ive just remorgaged that one for home inprovments truth is ive used it to buy me and my girlfriend my first detatcht house non of the morgages are with the same banks but each morgage states for the morgage holder only these are not aloud to buy to let because thats a better rate of interest for the bank and banks will no longer loan out for buy to lets so do i just keep quite and hope the banks dont talk or go to um and say i didnt know how do you get around this one at the moment i have ten rooms fully let ?

  8. Simon Zutshi

    A few things here. First of all your should get permission from your lender if you are renting it out rather than living there yourself. Many investor do not bother to do this.

    However, most important is to make sure that you have sufficient insurance. If you have a residential mortgage, and insurance with that lender but you are renting the property out to some tenants then your insurance will not cover you. This is very risky! you must make sure you have proper landlord insurance.

    The other thing you mentioned that is a concern is that you need to make sure you have any necessary HMO licenses. Generally this is if you have five or more tenants on three or more floors. As you may be aware when you apply for a license part of the process is to notify your lender. This could of course cause problems if your lender thinks you are living in the property.

  9. Inesa

    Hi Simon,
    Great article and very good strategy. However as Lizzie above I am still not sure how does it work regarding lenders. Let’s say I will have a vendor who will be willing to do an option agreement on the property for multilets (which previously was used as a single let). Even if he has BTL mortgage, that means that the property can not be rented out to more than one family – is that correct or I am missing the point here? If that is correct then this strategy would not work for the options, because we would need a different mortgage (possibly commercial)?
    Thank you in advance for your reply.

  10. Simon Zutshi

    Hi Inesa,

    Some lenders are ok with multi lets. To be fair they just want the mortgage paid. Don’t worry about the detail. Just find the sellers who are happy to do deal then worry about the lender. We do a commercial contract with the owner and then you can grant ASTs to the tenants.

    Regards

    Simon

  11. Angela O'Connor

    Inesa,

    Very good point. Only very few lenders allow HMO’s (3 or more unrelated tenants forming 2 or more households).

    The borrower will be in breach with terms & conditions in both cases where either only a consent to let has been granted without explicitly mentioning it’s going to be an HMO and also if the current BTL mortgage doesn’t allow HMO’s.

    If you are an ethical investor you should worry about this things IMO.

    Regards

    Angela