August was huge month for my HMO management company HomeShare, with thirty eight rooms let, thirty tenants checked in and seventy one newly refurbished rooms becoming available across Medway, Folkestone, Dartford, Catford and Woolwich. With fantastic reviews from both happy landlords and tenants, you’d think all would be well in HMO land, right? We are letting rooms faster than ever and continue to offer great standards of accommodation in well appointed and well managed properties, but is it possible there is a new storm brewing for HMOs?
Keeping up to date with all the latest news and views in the property world is a challenge. Investors should always be aware that market conditions can change very quickly. There are varying levels of expertise and knowledge and always plenty of opinions flying around, but one particular article caught my eye this week; Bill Rockett from a Newcastle based rental company wrote a piece for Property Industry Eye, voicing his views that HMOs have flooded the market. His view is that HMOs are negatively impacting the price of flat and apartment rentals in his area. He went on to suggest that HMOs have created an over-supply of rental accommodation in Newcastle, with the level of demand not rising to match. He raises concerns that this could escalate into other regions and with the supply and demand balance tipped, HMO owners – faced with the empty properties – might struggle to sell an HMO converted property.
In fairness to him, he does say that this is unlikely to happen in high demand areas like London. By extension – thanks to our proximity – I would say that Kent and Medway are also very unlikely to see supply beat demand. I am in the fortunate position of owning an HMO specialist management company, and from my experience, what I can tell investors at the moment is that the time has never been better to invest in an HMO in Medway. Of course there is a risk that this could change but the property market doesn’t deal in absolutes. It ebbs and flows, ducks and dives but with calculated risk and a carefully managed strategy, HMOs can offer a very lucrative return for investors.
For instance I sourced this property in Chatham for an investor for £137.5k:
I then managed the refurb which cost £30k including furniture, bringing the total spend to £170k with stamp duty. This created 3 large doubles and one small double, 3 toilets and two showers and a great new kitchen. The finished product looked pretty impressive:
The net yield (cash purchaser) came to 9.6% after all ground rents and service charges. All rooms were rented with 10 days and we have been running at 0 void periods since we let it in September 2017.
What I can say is that HMOs should not be viewed as get-rich-quick schemes. Renovation and management of an HMO is demanding and can be time consuming. Location of the HMO is critical to success, as are renovation budgets which need to be carefully managed. Ever-changing licensing laws and health and safety regulations must be adhered to, and – depending on your target market – seasonal tenant change overs need to be considered when budgeting. Home-Share offer plenty of free guidance for new investors, from to finding the right tenants to renovating your property to ensure it is low maintenance. This kind of expert advice will be invaluable to new investors looking to undertake HMO management on their own.
For those that don’t want to that level of involvement, Home-Share offer a fully managed service that allows landlords to take their hands-off and enjoy a passive income. Of course we charge for our service BUT it’s a specialist HMO management service, which means we know every single regulation, law, and intricate aspect of managing an HMO. Our landlords pay a fair fee for our expertise and our tenants receive a great service.
I appreciate Mr Rockett’s views and obviously can’t speak to the specifics of the market in that region, but surely for investors in general, calculated risk is part of any property market investment? And certainly in Medway, I see no rise for concern as to the ongoing growth of HMO demand. Let me know if you feel differently. Or if you’d like further HMO investment advice email me at email@example.com.