This blog post is an article written by Arsh Ellahi for YPN Magazine in response to a question about what HMO landlords can do as the cost in electricity and gas rises. The below is his response.
Suck it Up
There will be some landlords who will not really take much action on this and will therefore just absorb it as another cost and as part of the operation. Ultimately, the owner will now be reducing their cashflow by £693 per annum, which calculates as £57.75 per calendar month.
As per the OFGEM website, you could start to fix the tariff now meaning that you will be able to lock in a certain tariff. Please note that many energy suppliers would have also increased that to factor in the rise, so you may need to look at other methods, which I will list below.
So, what else can you do?
1. Increase the rent to match the new cost
If you break down the additional charge, £693 per annum = £57.75 per calendar month, which calculates as £13.32 per week. If you run a six-bed HMO, in essence increasing the rent by £10 per tenant per calendar month would cover the cost of the increased charge. You must, however, consider the following:
- When was the last time you increased the rent?
- What would your tenants think of this new increase?
- a. Would they be happy to absorb the cost? Or …
- b.. Would they leave? If the tenant were to leave, have you factored in the cost of the loss of rent and maybe the cost of the refurb of the room? Would this cost more than the actual increase in energy?
2. Use some smart home tech to control the usage
There are lots of products on the market that can help with making sure that the property is not “energy inefficient”, by this I mean that the boiler is running full blast whilst no one is in the house. You can always spot an HMO on any street. You will notice that all the windows are open, even on a cold day – that’s because it’s so warm inside. The only person who loses here is the Landlord.
In a few of my HMOs where the bills are all-inclusive, I have been using a thermostat called ‘Time:O:Stat’ – a thermostat created by a landlord for landlords. (Please note that I am simply sharing my experience of them here, this is not a product promotion.) What makes Time:O:Stat unique is that after the specific times are set, any tenant who wants additional heating will need to press the boost button. This means that if no one is in the house, there would be no boosts and therefore no heating and no wastage. (Feel free to check them out.)
3. Turn all electric
In a lot of my HMOs, I have stripped out the gas from the property and fitted each room with its own electric meter. It is worth noting that I generally do this at the start of the refurb of the property, but I have recently been retro-fitting some electric meters, called ‘Metro Prepaid’.
I started doing this, i.e. going all electric in a property, 20 years ago, simply because I wanted to ensure I knew what the cashflow would look like on a long-term basis. I have been installing electric meters in every room – which meant that the tenant would be responsible for their own energy consumption – and you’d be surprised with the difference it makes. Earlier I mentioned that with an all-inclusive model HMO, the heating would often be left on and the windows would be left open … Not in my HMO! It is rare to find even a TV left on standby. Why is this? It’s simple. It’s because the tenant is paying for it! Fitting the electric meters into rooms meant that I would also remove the central heating from the property, replacing it with electric panel heaters. The same principle applies, if the tenants want to use it, they will be paying for it.
The Metro Prepaid meters can be retro-fitted, and done so very cost effectively. It does mean that there will be some rewiring required so you will need to consult a competent electrician. Once installed, however, you will no longer worry about large energy bills and instead just enjoy high cashflow. By installing the meters mentioned above, you may also now be able to demonstrate that this is no longer a standard HMO, and you could use this as a benefit to generate a commercial valuation on your HMO.
I really hope some of these suggestions will help you. As you can see above, there are options available to any HMO landlord who is worried about losing cashflow from their property.
If you have a question you would like me to answer in an upcoming article, please feel free to email me: arsh@arshellahi.com and I’ll aim to answer as many as I can over the coming months