If you own or run an HMO your primary move right now is that of stabilising your business through cashflow management. Without this, your business could implode.
If you don’t already have one, a cashflow forecast is a vital tool which will allow you to see the numbers of your business whether you have one or a hundred and one HMOs. By plotting the exact income and outgoings of your HMOs you can then see what actual cash you’re making each week or month.
In normal times, we review our cashflow forecast each month. Right now we’re having weekly meetings to assess the losses which are occurring due to nonpayment or reduced rental payments.
Using a cash flow forecast will reduce your fear as it increases your control. You can also use it to model various future scenarios. What if your rents decrease by 20, 30, 50%? What will that look like?
Secondly, ask yourself which of your outgoing payments you can restructure to reduce outgoings. Are there utilities you could pay quarterly rather than monthly, and do you have other direct debits that are nice to have but an unnecessary luxury right now? Many HMO landlords I know manage their outgoings cautiously already but it is worth speaking to your utility companies and local council to see what flexibility you could get with payments.
By looking at your figures in a constructive way, you can see
immediately at what point you might need to apply for a bank loan, or get a mortgage holiday from your lender.
Longer term you may decide whether HMOs are the right strategy for you, or whether you could work with the local authority (whose housing needs will skyrocket) to ensure a steady, albeit, reduced income.
Thirdly, communicate with your tenants if you are managing your HMO personally.
Otherwise, regularly communicate with your agent to understand their approach so that you don’t lose rent through ignorance or misunderstandings.
Current government guidance states “Tenants should continue to pay rent and abide by all other terms of their tenancy agreement to the best of their ability. The government has a strong package of financial support available to tenants, and where they can pay the rent as normal, they should do so.
Tenants who are unable to do so should speak to their landlord at the earliest opportunity” (‘Coronavirus (COVID-19) Guidance for Landlords and Tenants, 2020, p.7). It is clear that tenants have a responsibility to pay their rent as far as they can.
In our lettings agency, which manages all our personal HMO rooms as well as rooms for other landlords, we have created a ‘Rental Arrears Request Form’ to enable tenants to explain why they need to pay reduced rents, and for how long.
Once we have received it, we can then address each situation on a case by case basis and work with the tenant to create an acceptable rent compromise.
Many tenants have the misunderstanding that they do not have to pay rent during this time. It’s really important that you share correct information – namely, that they cannot get evicted for three months, BUT any arrears will continue to build up, and will be due at the end of the period.
We have also produced posters, updated the information on our website and emailed and phoned each tenant to discuss their individual situation.
These are all necessary steps which have demonstrably reduced our losses already – and also built stronger relationships with our tenants.
Just as the pandemic has caught us somewhat by surprise, we should all be prepared for more shocks. It is likely that the UK will suffer a serious recession, if not a depression, and this will affect the rental market. It could mean an increase in people needing HMO rooms.
Depending on the length of time we are in lockdown and the impact this has on the economy it will affect jobs and incomes. It’s likely that lowered incomes will be the result, and therefore HMO rooms may be the only choice of accommodation available for tenants.
The Austrian grand chess master Savielly Tartakower, who was famous for his laser-sharp wit once famously remarked, ‘No-one ever won a chess match by resigning’. It’s a phrase we could all do to remember as we pit ourselves against our invisible adversary.
Stay positive and strong!