A Proven Formula To Get Multiple People To Pay Off Your Bond
It’s the oldest excuse in the book…
I’ve heard it so many times I’ve lost count.
It’s probably stopped more than 95% of budding property investors I’ve met from actually starting their property empire.
I’m sure you’ve even said it before…
“I just don’t have enough money to invest in property”
But what if there was a way you could get someone else to pay for a property for you?
That excuse suddenly disappears doesn’t it?
Better yet, imagine there was a strategy you could use to pull a much higher rent than the property would normally offer the average investor, and you could get multiple people to pay for it?
You bet there is, and it’s a strategy I’ve been using for years.
Today I want to give it to you…
How To Get Many Tenants Paying Off One of Your Bonds
The magic all happens because of something called a multi-let.
Multi-lets, also known as HMO (Houses of multi occupation), are often regarded as the cash flowing cows of the property world!
Essentially they’re an accommodation fit for multiple tenants.
This means that you’ll receive more than one rental cheque per month, and naturally this can be an extremely lucrative strategy (from a cash flow point of view).
Unfortunately though, unlike in the UK, South Africa doesn’t have an abundance of positive cash flowing properties unless they are multi-lets. The reason being that in South Africa we pay our capital amount and the interest gained on the bond.
In the UK for example, you’re able to get interest-only bonds, which greatly decreases your monthly expenses and helps you attain positive cash flow from day one.
That doesn’t mean they’re not out there, most property investors just don’t know where to look.
Today I’m going to show you precisely where you can find these cash cows!
The 3 Cash Cow Multi-Tenant Strategies
Multi-Tenant Strategy #1: Student Accommodation
Students are relatively easy tenants to find depending on if you have the right location.
Think about when you were a student, you wanted to be close to two things: The university and the night clubs.
If you’re able to find a large property near a university that’s still relatively close to the night life, you will have little problem finding student tenants to fill those rooms.
Other things that appeal to students is free WiFi.
Make sure to market your properties so that it’s clear they’re getting free WiFi.
We are talking about the digital generation here, and for them connecting to WiFi is as important as us checking our emails when we get to work.
This is one of the biggest selling points you can have in your student accommodation.
This student strategy is quite simple.
All you need to do is buy a relatively big property and customise it to have many rooms, and include one common room (IE a relaxation area) as well as a kitchen.
You’ll also have to ensure that there’s at least one bathroom for every four people.
So if you’re looking at a HMO of 6 students, make sure there are at least 2 bathrooms, and confirm with your municipality regarding any other restrictions that might potentially come into effect.
Multi-Tenant Strategy #2: Corporate Professional Tenants
This would be anyone who regularly travels for work (perhaps staying for short 3 to 6 month contracts), who don’t necessarily want to sit in a hotel, but would rather have a small house where they could cook themselves.
These people would often rent from Monday to Thursday and would be best suited for an area like Sandton (or any other high traffic or commercial districts).
These professionals often work for large corporates (and even banks).
They’re genrally looking for:
- WiFi (mostly for email)
- A professional and clean room, they will pay for comfort
- A TV - To allow them to relax after a long day’s work
- A set of wardrobes- To hang up their professional attire
- Bar fridge and kettle - To keep some essentials
- Lamp on bedside table - To read the newspaper or a business book
- On-suite bathroom - They are less likely to use communal bathrooms
- Lastly and most importantly, they want a room that is quiet and peaceful
Multi-Tenant Strategy #3: Industrial Accommodation
The last area you could target would be the industrial workforce.
These are people who live in rural areas and want to be closer to the city to save on transport costs.
They’re not high income earners but would be willing to live in a HMO if that means they can save on the rent costs.
For example, Discovery is a big company based in the middle of Sandton and part of their Sandton branch is a call centre.
Their call centre agents sometimes live quite far away because they cannot afford the accommodation in Sandton.
These are the kinds of people you want to target with this strategy.
If you can get a property on the outskirts of Sandton and rent it out to 4/6 tenants, you will get a good return (by providing them with a solution to their travelling problems).
They are similar to the professionals in what they are looking for, but they also require access to public transport.
If you can arrange a shuttle from the house to their workplace that’s something that could sweeten the deal and something I find works a charm!
Remember that property investing is really about providing a solution to someone’s problem.
If you can take away their headache and expense of transport, they will happily keep you afloat with their rental payments.
The 3 Key Questions You Need To Answer Before You Begin
There are three key questions you need to ask yourself before you get into the multi-let market.
Question #1: What is your strategy? Remember that these multi-lets serve as a good technique to build your passive stream of income. For example, it’s not always well-suited for a flipping strategy.
Question #2: What is your area? The area will tell you what needs there are. Are their hospitals in the surrounding area where nurses and assistants would like multi-let property solutions?
Question #3: What is your target market? Are you targeting students or professionals, and how are you catering to their needs? Try to answer question 2 before you get to this questions as that’ll go a long way in helping you define your target market.
Once you’ve asked yourself these questions you’ll have a lot more detail you can use to setup your multi-let, not to mention the quality required to attract the right tenant.
The downside with multi-lets is that it requires a lot more management from your side, as you will be dealing with multiple tenants instead of one.
There are many service providers out there who will manage your multi-let for you for a small fee.
This all depends on where you are in your property journey.
If this is your first property and you have spare time, the best thing to do might be to manage the tenants.
However, if you have many properties, you should look to invest in a letting agent to manage your properties for you so that you can buy yourself time and invest in more properties.
I like to buy older houses / properties because they tend to be bigger.
When doing so you can implement smart ideas like turning a dining room into a 5th room for example.
You could even get planning permission to build a few units in the large garden…
The last thing to remember when investing in an HMO is that there are certain legalities involved.
You will need to confirm the details with your specific municipality.
For example, each municipality will have overcrowding restrictions, IE you have to have X number of bathrooms for Y number of people.
Other things you’ll need to confirm with your municipality are:
- Providing 30-minute fire strips (IE the door takes 30 minutes to burn)
- Interlinked smoke alarms (in each room). If a fire breaks out in the kitchen tenants on the other side of the house will know about it
- A fire blanket in the kitchen
- Boards pinned with emergency numbers for the police, fire, landlord… And not forgetting a fire procedure
It is a lucrative strategy, you just need to make sure that you have the right support and power team to guide you.
Get More Than One Tenant To Pay Off Your Property Today
Like all things in life when there is more to put in, there is more to take out.
And when it comes to multi-lets, it’s no different.
Multiple income streams can offer you the chance to earn more than you ever would’ve received from just one tenant.
And that’s precisely what makes this strategy so lucrative when done right.
Remember, there are three areas you can look at to find the right multi-let deal:
- Student Accommodation
- Corporate Professional Tenants
- Industrial Accommodation
So what are you waiting for?
Kick start your multi-let strategy today and get a few tenants to pay off your property, build your real estate portfolio, and ultimately grow your wealth!
Until next time, be bold and go build that property portfolio.
Analyst, The SA Property Investor
The Money Lab