So, if you can obtain property for almost nothing, there is an increasing demand for HMOs, and the bureaucratic restrictions are loosening, can there be any downside?The bad newsWell those who know me will tell you Jim always has a ‘but’ and this has not changed, for 2011!(i) TenantsThe major problem, which has always been there, but rarely spoken about in all these high powered expensive courses which encourage novices to become landlords, is ‘the tenant’. There is, I believe, so much rubbish spoken about ‘working on your business not in your business’ and getting others to manage your HMOs for you. This approach rarely works for HMOs, as they usually need the type of management which only the owner will give. The success of a HMO business is based on the owner managing the business themselves, so – if you do not want to deal with tenants don’t become a HMO landlord!(ii) Housing Benefit changesThe government appears to be out to get landlords who house the unemployed by reducing the Housing Benefit (HB) payable to landlords for such tenants. Details have yet to be clarified and the changes will be implemented over the next few years commencing this April by changing the percentile on which HB rents are based. I estimate this will on average amount to a 10% reduction in HB payable to new tenants. For existing tenants it will take 9 to 21 months to be phased in depending on when the anniversary of the tenant’s HB claim falls.(iii) ManagementThe HMO model that generally works is to acquire 5 to 20 properties and turn them into HMOs in your own locality. I am a great fan of buying ‘in line of sight of where you live’; anything else rarely works but it is not impossible before anyone says they successfully operate a different model.Take it from me; it is easier to manage a HMO yourself than to manage staff or agents to look after your HMO, as they just do not have the interest or enthusiasm. A landlord managing their own property themselves can do the work of 5 staff. Deduct the costs of 5 members of staff, their inefficiencies and defalcations out of your bottom line and you are on to a loser even with the extra income HMOs offer.When managing properties the biggest time waster is travel so if you live close by you can save a lot of time and it is easier to manage even if working. Do not be too keen to give up your day job as it provides structure and a useful diversion and a time constraint from managing HMOs.The old saying ‘if you want something done give it to a busy person’ is also true in this business. The more you do, the more you can do! The HMO business can suck up all your time with maintenance, tenant problems etc. Putting a time limit helps as unemployed tenants, like the retired, have no concept of time and will spend hours over this and that. I can be in and out of one of my HMOs, collect the rent, carry out a weekly check all in less than 15 minutes. How? I do not stop moving! If a tenant wants to talk to me I give them the choice:- I will call them back or they run behind me and if they run behind me they soon run out of steam. All you need is the problem not the elaborate story and emotion that surrounds it. If the problem can be solved do it then- ‘have a do it now’ policy. This approach does mean you need a car boot full of tools, plunger, bulbs, TV aerials, spare TVs etc. Most jobs take only a few minutes and I am a great one in getting the tenant to do the job themselves. It is all down to the relationship you have with your tenants and I find having a pack of cigarettes helps. Give them a few cigarettes and the tenants will do a lot of jobs for you.Professional tenants usually accept their responsibility in helping to look after the HMO while an unemployed tenant expects everything to be done for them, although are generally less demanding. Unfortunately, this does not balance itself out. Among unemployed tenants, also known as Housing Benefit, HB or DSS tenants, there are a significant minority of very troublesome tenants who have ‘issues’ ranging from alcoholism, drug taking, crime, prostitution but by far the most irritating are the attention seekers. More than once I have had to empty a HMO as one badly selected tenant turned the property into a crack house. Drug dealers do not come with a large ‘D’ stamped on their head and they have the ability to corrupt others in the HMO and they don’t usually leave!(iv) Interest Rate RiseInterest rates have been very low and the general feeling is that they will start to rise towards the end of the year. I am not sure exactly what is going to happen with interest rates but, if they do rise, I expect to see a lot of repossessions and pain.(v) Universal CreditThe most worrying prospect, is the proposal to abolish HB and replace it with Universal Credit where, for example, the unemployed will get a fixed benefit out of which they have to pay for their own housing- back to the 80’s and Supplementary Benefit. The proposals apply to all landlords including social landlords. This is not expected to be implemented until after 2013 and with the lack of details, I feel it is too soon to speculate, however, it is worth being aware of the possible impact.The current government along with the last government are wedded to the idea of giving responsibility to those on benefits to pay their rent. This is why the current government has reneged on their pledge to allow direct payment of Local Housing Allowance (LHA) to landlords. Tenants, with a few exceptions, are to be paid their LHA directly and it is up to the landlords to get it from the tenant. My experience is that over 80% of my tenants, who have been paid their LHA direct, keep it and who can blame them! There are no consequences to keeping their LHA for themselves as it is not a criminal act, and the worst that can happen is that their future LHA will be paid directly to their landlord via the 8 week rule. The 8 week rule says ‘If the tenant is 8 weeks in arrears, then if the landlord applies, the tenants LHA must be paid direct to the landlord’ NOTE- the HB department have discretion to pay it before then, but again the landlord has to apply.So let’s consider the situation where the tenants Job Seekers Allowance (JSA) includes the rent, as proposed in the Universal Credit. It would then be entirely up to the tenant as to whether they paid for their accommodation or not. Just as the present system allows the tenant to spend their JSA as they wish, many in my experience spend all the JSA on alcohol and or drugs and nothing on food.My feeling is that many claimants would chose to keep the money and not spend it on accommodation, deciding to sofa surf i.e. sleep on friends floors or sofas or even live rough. I can foresee the growth of tent cities as in America, and also greater sharing just as was found with tenants who have to pay: they economise and house share. It is no urban myth that 3 to 5 workers will share a room. I have seen it all too often. So I believe we will see a massive reduction in demand with the more sociable HB tenants unofficially sharing. It would be interesting to assess how the unemployed manage in countries that have not had such a generous welfare system, up until now. If the tenant is given more money they will not spend it on rent as has been seen with the reckless experiment of paying tenants LHA direct.Do not be under any illusion that just because the proposals include social housing that it will be abandoned under the massed ranks of pressure from social landlords. I believe, just as LHA direct payments excluded social landlords so will Universal Credits. Private landlords are, unfortunately, not well enough organised to assert their pressure for change.My conclusionThere will be a massive drop in demand from LHA tenants and greater difficulty in getting paid by those who do want accommodation. It is a time of great uncertainty when fortunes can be made as sensible, rational, people will look at the future and be put off investing. It is a period of time when assets can be obtained at, what will be in hind sight, rock bottom prices. All I can say is you only have today and hopefully, God willing, tomorrow and this looks good to me as a HMO landlord. As for next year and the year after – I don’t know.