Photo by J.O. Property
Currently, we’re experiencing a period of high inflation, cost-of-living crisis, and a stagnant economy, and with that, comes a lot of uncertainty… This makes it more important than ever to consider how you can increase the profits of your HMO business and reduce your operational costs.
With costs going up and up, we’re making less and less money, so it’s naturally not the easiest time to scale up a property business. Right now, we all need to be proactively thinking about how we can improve the financial efficiency of our HMO businesses.
Read below or listen to the full episode on The HMO Podcast for 12 proactive solutions you can implement straight away to reduce your overheads and be more profitable!
1. Increase rents.
The first and possibly most important thing we all need to do is increase our rents. I know there’s a cost-of-living crisis, and we don’t necessarily want to do this to our tenants. However, if we don’t start increasing rent, we’re going to get swallowed up by inflation, and our margins will disappear before our eyes!
How much you need to increase depends on what your rent is currently at, when the last time you increased them, how long your tenants have been in the property, and what’s happening in the local market. Make sure that you give your tenants plenty of notice that this is coming.
Many landlords are concerned that tenants might refuse to pay the increased rent and move out. There’s a risk that some tenants will find alternative accommodation, but in my experience, most tenants have understood and accepted that rents have to go up.
2. Consider switching energy providers.
It’s been a roller coaster over the last 12 months with utility bills. If you haven’t looked ahead at energy tariffs and different providers, you need to start doing this now!
Make sure you’re on the best tariff you can find. Look at all of the energy providers on offer and consider changing. Check out MoneySavingExpert.com for more information on the options on offer.
3. Install smart thermostats into your properties.
You can get an electrician to connect smart thermostat devices, such as Inspire or Nest, to your boiler, providing control over the heating of your properties – instead of giving tenants full rein. Tenants can still boost the thermostat, so they can push the heating up if it’s particularly cold.
Once these devices are set up, you can create programs for every single day and at different times of the year. You can copy and paste programs, so you can have the same setup for every single property directly from your desktop. I strongly believe this technology could save you as much as 30% on your energy costs!
4. Educate tenants on sensible utility usage.
Your tenants are probably not as in tune with rising energy costs as we’d like them to be, particularly if you’re paying the utility bills. So, you need to make sure that they understand how significant the costs of their overuse are to you and the ability to run your HMO.
Sit down with your tenants and give them some educational information, have a conversation with them, and help them understand what they can do and why it’s so important. Every month, you should also get accurate bills with meter readings to show a real-time picture of what the utility usage is in each of your HMOs.
Then, give feedback on this data to your tenants and tell them if they’re doing well and in line with your expectations or if they’re spending more than you anticipated. Reinforce this with advice on how they can be more energy efficient. This is something that needs to be built into your systems and processes.
5. Introduce fair usage clauses for student HMOs.
If you have student HMOs and you’re paying the bills for your tenants, you need to have fair usage clauses in your tenancy agreements. That is the only way you’ll be able to claw back on over-usage of energy at the end of a tenancy.
If you have tenants already in your student house, you can’t amend the tenancy agreement part-way through, but this is something you should definitely change next year. Keep in mind that this is now impossible to enforce with professional HMOs.
6. Install sensor lighting in communal spaces.
More and more landlords are installing sensor lighting in communal spaces within their HMOs. It makes sense to do this at the point of a refurbishment where possible. While a lot of us have numerous houses that are older and have been up and running for many years, we may not necessarily think about doing this, but now is the time to make this addition!
While it’ll cost you money for the materials and labour, this will help you and your tenants save on energy bills. And over the next few years, we need to figure out everything we can do to help manage these costs.
7. Consider adding coin-operated appliances to your properties.
I don’t actually have any of these in my HMOs, but with spiraling energy costs, it’s something I’ve started thinking about for the first time. You can buy coin-operated washing machines or tumble driers, or there are pieces of kit that allow you to turn normal appliances into coin-operated ones.
This controls the usage of these appliances, which can help you save money and ensure tenants aren’t putting small loads on. Particularly in larger HMOs, this really could save you hundreds, if not thousands, over the course of a year!
It can be tricky if you have tenants who already live in your house, and then all of a sudden, you turn the washer and dryer into coin-operated machines. Think carefully about how you’re going to deal with this as you might need to put your tenants onto new tenancy agreements and build that in.
8. Renegotiate or cancel subscriptions you’re not making the best use of.
Over the years, a lot of business subscription costs, from property management software to Adobe, have gone up. It’s easy to start accumulating lots of subscriptions and retainers, and over time, you may not have challenged price increases or asked for a discount. Some of these may even be things that you don’t really need or aren’t getting the best value from.
Audit all of the subscriptions you’re paying for and keep on top of it. Look at the things that you don’t need and where there might be more economical options. You could even have a conversation with the company and try to negotiate the price back down. Every little helps!
9. Proactively manage maintenance.
A lot of us are guilty of being reactive when it comes to maintenance. We wait for things to happen before we deal with them, and that can be expensive because the labour costs more if you have to ask someone to do the work quickly. Or it can also be pricier because something has caused more damage than if we would’ve caught it earlier!
So, be more proactive with your maintenance strategy, and this includes doing inspections more regularly and thoroughly. Inspections shouldn’t be a quick whizz around just to check that the tenants haven’t trashed the place. These are detailed health checks to ensure that there’s nothing that could become a bigger problem.
10. Improve your customer service.
Your tenants are your customers. I know sometimes they frustrate us, but we need to start understanding this and giving them the best possible service. Work on your customer service policy. If tenants feel like they are valued, appreciated, listened to, understood, and are getting a great service, they’ll likely stay longer, making you more profitable.
And it doesn’t actually cost anything extra to provide a better customer service experience. There are simple things you can do, such as improving your communication policy, setting better standards for yourself, being more available for your tenants, and making it easier for them to contact you about their problems.
11. Stay on top of renewing tenancies.
Irrespective of how long the tenancy is for, be proactive when it comes to tenancy renewals. Don’t wait for them to expire. Speak to your tenant about what they want to do, and then try to get them onto a new tenancy as soon as possible.
Doing this can give you more rental confidence and the ability to plan. What you want to try to avoid is having all of your tenants in a house on rolling tenancies, because, at any point, they could all give you four weeks’ notice to leave. All of a sudden, you have a number of rooms to fill, and that can be really expensive.
Tenants are of course going to need to leave – that’s the nature of co-living! But if you have them on fixed-term tenancies and you’re proactive with renewing them, you can reduce the chance of a mass exodus happening all at once.
12. Focus on opportunities and growth.
Finally, you still need to focus on opportunity and growth, because growth is ultimately the best way to remain more profitable. Prioritise finding deals and investors, doing great refurbishments, and adding value to your properties.
Think about all of the areas in your HMO business that you can grow and improve. Make sure that no matter what problems you face and what challenges you have to overcome, you still remain focused on growing.
We need to be more proactive than ever to maintain profitability in our businesses. Costs are going up, it’s getting more challenging, and there’s ongoing uncertainty. If you want to keep scaling and be able to reinvest your profits, you need to be actively doing these things!
To discuss any of these points, head on over to The HMO Community, our free group on Facebook. And if you want the detail on how to implement these strategies, sign up for The HMO Roadmap today!
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!