When investing in an HMO, there’s a lot you need to consider, and whilst the returns you can achieve are very attractive, operating a compliant HMO requires specialist knowledge along with excellent management.
When speaking with investors and carrying out discovery sessions, a question that I regularly get asked is what the key things they need to consider are. Honestly, there’s so much you need to get right that it’s hard to fit into one article but here are my top four things to consider.
Location, location, location
Surprisingly, this is an area that HMO investors can often get wrong, and doing so can be very expensive for the long term. Location is not only important because of tenant demand, but things like local demographics and property type plus price are crucial to consider.
To illustrate an extreme example, there’s no point in purchasing a listed building in a conservation area with low tenant demand as not only will you be unable to convert it, but you will also find it pretty impossible to fill.
When looking for the right location, my tips are to:
- Research on Spare Room to find out where there are currently HMOs as this will give you an indication of where could be a good area
- Get familiar with the sales market by regularly looking at Zoopla and/or OnTheMarket. For example, Medway’s terraced and semi-detached houses can tend to be good to convert
- Network with local agents, other investors and get along to as many property networking groups as you can (such as https://propertysuccess.network)
- Learn the local HMO market inside and out. Know what rents are, the type of tenant, how many HMOs there are, what standard of HMO there is, etc
Getting your location right is key as the right property in the wrong location is just as bad as the wrong property in the right location!
Another key point is tenant demographic. This will not only guide the style that you choose to opt for but will also make sure you can place your HMO in the most profitable (and easy to manage) location.
Medway tends to work well for HMO investors because of the mixture of health-related and white/blue-collar workers. In addition, being near a university campus is something that has traditionally worked well.
When it comes to being easy to manage, I find that working professionals are the best tenants. Rent is paid on time, the property tends to be kept in good condition and there are generally fewer tenant issues you need to deal with.
Suitability Of Property
I touched on this point above and commented that Medway’s terraced and end of terrace houses work well. It’s true, however, that there is no perfect property for an HMO, and I have seen successful HMOs in everything from Victorian terraced houses and new build properties to bungalows and commercial buildings and anything in between.
The only type of property that investors will want to steer clear of is a leasehold flat and listed building (and probably properties in a conservation area).
So, what should investors be looking out for? Well, something that I always pay keen attention to is the floor plan as this will help guide you in outlining how much work will be required to convert into a profitable investment.
Key things to look out for are areas such as the size of existing rooms, where structural walls should you need to make any changes, location of plumbing, sewers, electrics etc. Bear in mind that not all properties will be suitable however, as you start getting familiar with local housing stock you will quite quickly be able to very quickly spot a suitable property.
Amenities / ensuites / living area
This final point really is key and comes down to investors choosing the right location, right property, and converting it correctly. I tend to find that a well thought out HMO is much easier to let (and achieves a higher rent) than a poorly thought-out one.
Consider local amenities such as access to shops, rail, and bus networks along with parking. I often find that a higher percentage of HMO tenants rely on these being nearby than something like a single let property.
Having a living area is also an important point to consider as it gives tenants somewhere to kick back and relax that isn’t their bedroom. When it comes to ensuites, if you can fit them in then it’s well worth it as ensuite bedrooms tend to achieve a higher rent. However, what you don’t want to do is take too much away from the bedrooms.
A mixture of ensuites and shared bathrooms within a property can work just as well and this is exactly the approach, I am taking for an HMO conversion currently underway in Gillingham where we have 2 en-suite rooms and four bedrooms with two shared bathrooms.
Can I be of any help?
I hope you found this article helpful! If you’re thinking of investing in an HMO then I know you will agree that there’s a lot to think through and if you would like to discuss further, I often run one-to-one discovery sessions that cover everything you need to know (whether novice or experienced investor). Sessions last two hours, cost £247 and you can find more information including how to book here.