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At the Property Investor Show recently, I caught up with Matt Bates of Lets2Share.co.uk who shared his interesting niche property strategy. It has resulted in him and his business partners achieving 80 bedrooms in 18 months.If you have any questions for Matt, he would be happy to answer them here.Related content:HMOs - my little goldmine Is a niche strategy the true way to financial success in property? Ascertaining HMO demand HMOs cited as preferred strategy for 2016 HMO Trends with David Smith
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Wonder how the business model might be affected by Councils imposing CT on the individual rooms!!!??
Let's hope these stupid councils are stopped by the VOA from valuing HMO rooms as individual dwellings
If they aren't stopped could cause HMO LL without students a few problems!!!!
Always wondered when the student tenancy expires the LL is presumably responsible for CT
Two HMO's with 5 rooms each paying CT for 2 weeks a year on each room
Thank you for watching the video. It’s a really valid point to make!
All of our homes have shared communal facilities rather than a bed-sit model so it would be difficult for bedrooms to be justified as individual dwellings. I can see this being an issue in other cases with other landlords should something be introduced.
Some of our homes are leased directly by educational establishments and are therefore classed as ‘halls’ which are exempt from CT. In others, we work hard to ensure ‘back to back’ tenancies.
However, when all said and done, we operate property and have a range of funds all with different objectives. Our largest fund is all about ROCE and long term hold. We buy well, add considerable value and repay (there may be capital appreciation over time but we don’t factor that in). We stress test and scenario plan and whilst we obviously want to make an operating profit, we are realistic about costs and build them into our model. We have a yield scope and if something were to fall outside of this we will review its place within the estate.
Thanks very much for sharing your model and its great to see you having a lot of success.
I'm currently in a position to start investing and it would be great to have a brief conversation with you on the phone.
Are you free for a quick chat? It would be much appreciated.
I believe your various strategies are to be welcomed in that you are provisioning much needed rental property via your various enlightened methodologies
It would be crying shame if the stupid councils were allowed to spike your guns by charging Council Tax per room
Such CT changes would substantially disrupt your currently very effective business methodologies
This would be manifestly unfair
But many HMO LL face this completely unjust attack in their financial viability. HMO LL of all types are providing much needed rental accommodation
You could almost say that HMO LL are the new social accommodation providers, a position which councils etc used to occupy
It is crazy that councils would seek to tax HMO LL, treating the rooms as individual dwellings for CT purposes
This is an underlying massive risk to the HMO business model
With the best will in the world you would be unable to make your figures stack if the tenants had to pay the CT themselves
This is just one of many reasons why I will never wish to become a HMO LL
You simply cannot be a HMO LL unless you have an escape strategy if and when councils introduce CT on individual rooms
CT is a major cost to a HMO business
Multiply that cost by the number of rooms and I defy any HMO LL to make the business viable anymore.
Hi Matt,Great to see you joining the conversation!I was wondering if you could share some pro's and con's of serviced accommodation?It seems to be the flavour of the month at the moment!Do you have a ball part cost of setting up a SA room in terms of window coverings, furniture, dressing pack, bed linen and towels x 2 etc.It would be interesting to know how you budget each room.
SA is something we’re only just starting to explore. However, our shared home product is a high quality SA style – just with ASTs in place.
One of my most valuable KPIs is the ‘cost per bedroom’. This is top three of the metrics when assessing the suitability of a potential project and will save you hours of time at the front end. It can also then be used to arrive at the most you can pay for a donor building. The cost per bedroom should include acquisition, development costs, F&F and cost of money. Simply divide this by the number of bedrooms and you’ll arrive at a figure. This on its own gets you thinking about modelling in the right way but is only part of the equation and is most effective when building a portfolio.
So, our ‘cost per bedroom’ range is £29k to £40k. £35,000 is about right in my opinion. Let’s say we see something that could be five beds. £35k x 5 = £175,000. With experience a desktop study might suggest £50,000 will cover development costs and F&F. This leaves us with £125k. Deduct your cost of money, legals and SDLT and you’ll be left with a maximum figure you can pay for the property.
This KPI should be used by others in my opinion **but the values will be different for everyone** based on all of the variables such as location, product and available resources. The above example is simplified for ease of explanation.
In terms of F&F, we pay around £1,200 per bedroom. Our operating costs are 25% of gross rent which includes all utilities, cleaning (communal areas only), maintenance and of course ‘full authority management’ with 24/7 contact.
If it helps anyone I can break down the inclusions that we provide and give a costing of both our 'high end' boutique range and also our 'mid range' which many of our clients succesfully use as more than acceptable serviced apartment set up.
Boutique High End:
1 x 4’6” Grey Fabric Based Divan Bed with Semi Orthopaedic Mattress (1000 pocket sprung with memory foam top is also available as an upgrade for £80.00)
1 x 5’0 Grey Fabric De-luxe Feature Headboard
1 x Double Wardrobe with MDF wood tops with fully sealed rear panels and strong castors with double mirror
1 x 3 Drawer Chest with MDF wood tops with fully sealed rear panels and strong castors
2 x 2 Drawer Bedsides with MDF wood tops with fully sealed rear panels and strong castors
1 x Bedroom Dressing Pack (Duvet, 4 Pillows, 4 Pillowcases, Duvet Cover, Fitted Sheet, Mattress Protector, Throw, Scatter Cushions, Bedside Lamps and Ornament.
2 x Extra Bedroom Linen Sets (Always provide min 3 sets of linen per bed) 1 in situ, 1 spare and 1 in the wash!
6 x Towel Bales (with same concept as linen but 3 per person)
1 x Wall Art and 1 x Wall Mirror
1 x Hairdryer
10 x Coat Hangers
1 x Laundry Basket
· Cost can vary slightly in-line with order quantity etc but expect to pay around £950 plus vat for 1 bedroom to be done.
· However If a 2 bedroom property was to be furnished we would charge around £800.00 per room!
For the purpose of the exercise I have used a standard 4’6 double bed but a zip and link model would increase the price by £150.00 due to the extra bedding spec to legislate the room being utilised as a twin-room!James QuinnFusion Furniture Solutions
For a Mid Range Version..........
1 x 4’6” Brown Faux Leatherc Based Divan Bed with Semi Orthopaedic Mattress (1000 pocket sprung with memory foam top is also available as an upgrade for £80.00)
1 x 3’0 Brown Faux Leather Headboard
1 x Double Wardrobe with fully sealed rear panels and strong castors with double mirror
1 x 3 Drawer Chest with fully sealed rear panels and strong castors
2 x 2 Drawer Bedsides with fully sealed rear panels and strong castors
· Cost can vary slightly in-line with order quantity etc but expect to pay around £750 plus vat for 1 bedroom to be done.
· However If a 2 bedroom property was to be furnished we would charge around £600.00 per room!
same stuff as Sublime Furntiure
This is very interesting as we tried to create an HMO two years ago in Hastings but couldnt get it through planning as it was deemed to be appropriate for a family home. so we are interested to see how youve created a pathway in Hastings. Can you tell me a bit about how you are funding these purchases? is there any hope of refinancing to get capital out or is it left in the deal?
Also, the rents for a studio flat or 1 bed flat are so cheap in Hastings, can you tell me what are you charging for your rooms?
Adapt or die - Charles Darwin