In the world of HMO investors today’s topic can be somewhat controversial. It’s the question of communal spaces and whether or not you should include a communal lounge in your properties.
It is obvious that converting an existing lounge into an extra bedroom is going to increase your potential yield. But, in our opinion, by doing this you are incurring a hidden long term cost and loosing control over the tenant profile that your property will attract.
A question we get a lot is regarding communal spaces. People getting in touch with us want to know whether they should be providing communal spaces (lounges, essentially) in their HMOs. We’ll be covering that question today.
Now, this question can be quite hotly discussed in HMO circles with people on both sides of the fence. You get a lot of property investors (quite big HMO investors – people with a lot of properties who have been investing for years) that don’t provide communal lounges.
1. Why You Wouldn’t Provide a Lounge…
When investors don’t provide a communal lounge that isn’t to say that they don’t provide any communal space at all. They might go for properties that have a large kitchen that the tenants can use instead. It’s just that they don’t tend to have one central lounge for the tenants.
There are a number of reasons why an investor might want to do this but the primary one will be because the investor wants to increase the number of bedrooms in the property. By using what would have been the lounge as a bedroom increases the on-paper rental return that the property can deliver.
2. And Why You Should!
But then there’s the other side to the coin.
Investors that want to provide very nice, comfortable, tong-term living spaces for their tenants will ultimately have properties that have a very low tenant turnover.
What we have found is that properties that have a communal lounge space tend to fit this bill which is to say that the tenants stay longer when there is a lounge.
In our experience properties that have these communal spaces are best. Look at it from a tenant’s point of view. Say you have someone who has moved into a new area and into a house that has no social area. When there isn’t a lounge tenants tend to live in a fragmented, separated way. People tend to stay in their rooms much more but really this isn’t how most people would choose to live.
Without a lounge a house isn’t really a very nice environment to be in or at least it isn’t the nice, social environment that most people would prefer and which you get with a lot of HMO properties.
3. Tenant Profile
One question you should be asking yourself is “what kind of tenant do I want to attract?” Indeed knowing your ideal tenant profile is a fundamental aspect of property investing where you should practicing due diligence.
When it comes to communal lounges what we have found is that properties with a lounge can attract very different types of tenants when compared with properties that are without.
So in our HMO investments when we haven’t provided communal lounges this has lead us to one end of the working tenant market. Or it has lead us to local housing allowance or social housing tenants.
When we have provided a communal lounge, a nice living space, we have attracted a much wider group of professional tenants.
But most importantly with the communal lounge we have found that we have had a much lower turnover of tenants and in that regard alone it is well worth doing.
4. How Big Should The Communal Lounge Be?
In terms of what size you should be aiming for your HMO’s communal lounge, ideally you want something around 10 square meters and above.
What this will give you is enough space for a small coffee table, sofas, space for a TV, all that good stuff that you would normally expect from a lounge.
5. Putting It All Together
We’ve managed HMOs with communal living spaces and we’ve managed HMOs without communal living spaces. Going forward we favour properties where we can provide a lounge for our tenants.
Ultimately we like to plan over the very long-term. We want to provide the best service to our clients (in this case, our tenants). These tenants have options. If they want to move to a different property they can and easily.
We want the rooms in our properties to let first to the best possible tenants for the longest period of time and at the highest possible rates as well.
And this is why we want to provide a communal lounge. It helps to give our properties the edge over the competition in the area.
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