I have been in this industry for several years already and people are always coming and going. And even now, there still are a lot of people that want to get in the HMO property investing strategy.

One of the main reasons is the higher cash flow. HMO offers a high rental yield as it’s renting out multiple units within one building versus a normal family let.

Pretty straightforward right? 

I’ve seen so many people who do one or two deals and then end up creating a mess and therefore don’t venture any further forward. They would want to quit all together or end up doing something different. 

This is a very high cash flow strategy if you take care of a few points that I’m going to explain in this article. 

It might sound simple and boring, but it is that good old profit and loss that is going to determine your success. I’ve worked with so many people that just by implementing these clean and easy strategies to keep track of these numbers. Sounds like common sense, but people still don't do it. 

The first thing is to make sure you have a profit and loss (P&L) per company and per property. This will get you started. A lot of people think they already have this in place but often actually overlook it. So when they are asked to produce it, they have nothing to show. 

We start by dividing it out. We do a project profit and loss so we know where all of the money was invested in and what we got out. From the date that we receive the first rent, that is when we start the profit and loss for the property. So from this point, we record all of the income that’s coming from rental. After, we have the cost of sale in property. This is the cost of getting the tenant in place.

We should also take into account the cost of delivery which are considered as management fees because that is the cost of delivering the service. Next, there are other expenses like mortgage payment and all of the utility bills like maintenance or cleaning. And at the very end of this, will be your net profit.

Afterwards is the accrual which is to get all of the monetary items falling in line for each month where they’re supposed to fall. For example, if someone pays upfront which we commonly do, that will show on the cash accounting, it will fall in the month where it was paid for in the accrual. It will be spread across each month, so we have a more accurate picture of what the profit and loss is on a monthly basis.

Accrual Example

When I am reviewing my portfolio, this is absolutely critical for me to be able to make decisions. Plus, this also helps me understand what payments are being made and I can be on top of it straight away. I have made mistakes in the past where I did not prioritise the numbers, and I let the arrears get too far out of hand which made it too difficult to report back. 

Too many people move out and cashing that becomes a problem. They just don’t want to pay and they’re not really bothered by it.

Now, the other side is a cash report. This shows exactly what happened when the cash either landed or exited the bank. 

This is important in helping you manage your cash flow. It will actually allow you to see on a monthly basis how much money is coming in and how much money is going out.

The big mistake that most people make is looking at their bank account and seeing cash, thinking that they have money. I’ve worked with many businesses and I’ve seen firsthand that if something is not going well, it takes many months, sometimes even years, for the failure to show up and by then it’s pretty much too late. You must always be aware how much your property is producing in net cash flow so that you can prepare and have a plan for it.

An example here is shown in the picture. There is an actual loss going on, but if you don’t know why then you literally have no idea what to do with it. 

So with this particular one, the leverage was very high. The mortgage payment was high versus the rental income, but it was because we took out £88,000 after the refinance, so we could use it for aggressive growth. That way, it never actually lost money and later we sold it on to make a further £53,000 profit. Now based on the HMO strategy, that can be used for capital growth and there are other ones for cash flow growth. 

Capital Growth Example

When you look at this picture, it shows the boost of monthly revenue and the cash flow is high.

Cash Flow Growth Example

P&L like this one is good to be able to see long-term capital growth, while still covering costs. In fact, I scored a little profit while playing the game to maintain the asset.

The truth is; there are a lot of things you might see out there but there is so much more to discover behind the curtains. Unfortunately, people don’t always have this kind of information and when they do, they definitely don’t want to share it as they are shocked themselves. 

Business and money management is more important in my opinion than property management itself. But having a handle on both is what you really need. 

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