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I am not advertising just testing the water (mod. please delete if not appropriate) My question is this:
How much would you pay to have an HMO created for you?
It would look something like this:
4 bed HMO
4 professionals in place on 6 month contracts
ROI of 10% (after all costs, excluding tax)
Minimum £10k equity created (verified by 3 estate agents)
Ongoing management, optional extra
You're not going to like my answer, but nothing at all (to me) I'm afraid.
Now I know I'm one end of the investor spectrum, and you're looking potentially at others.Before you do anything, work out who would want to buy your product, why, and how you would get them to know about it.
The reason I chose nothing was for me, a HMO is one of the more complicated investments to buy, set up, and maintain.
You mention about setting it up, that's the easiest bit imho - what about 5 years down the line when it needs refurbing etc. etc.I would say most people that have been/are in the HMO game would want to do it themselves. Most people that haven't will be getting a wake up call X months down the line when they realise it's not just a case of sitting back and waiting for the £ to roll in!That's why I said nothing (to me).
Agree i would never signup for this. I want to do it myself. Was just wondering if there was anyone out there that might dip their toes into HMO if they had simpler entry.
Ok, I'm not quite sure of your initial question then, but if it's in terms of how much to set up an HMO to a good standard you'd need to be thinking in the region of £20k or so for a good quality product, with all the safety requirements etc.
There is a market for ready made good quality HMOs. This is because there is effort acquiring, carrying out the conversion, suffering the delay in first rent, and the sourcing the tenants, compared to one already up and running and paying rent from day one.
In my area a 4 bed hmo would not return any better than a standard BTL due to running costs. I do 6 room hmos, normally with a small extension and all en suite.
Rural Practice Chartered Surveyor. Experienced in estate management, residential investments, planning and development and rights for utility apparatus. All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Things definitely vary by area. What about if there was a 30% improvement in ROI in your area? What would you think?
Agree - plus with the impact of S24 a number of LL are shedding their portfolio...
My concern is that you are not aligned with investors who are investing capital for the long term. There are also loads of issues with guarantees of tenants, principally around the quality of the tenant and the guarantee.
I think there is a market for someone who would underwrite the HMO license including property sourcing - so I think the area is right but if you are no good them you are running away and leaving the investor with a problem. If you can seed some long term risk capital then that is very different.
I don't think anyone sensible would just accept your figures as presented. Do a deal with a RICS surveyor and rely on that! £10k equity value is not worth the effort for an HMO even if you can agree on how to define "equity created".
Finally I think it also depends on the property. As a matter of principle I don't like single units in large blocks but others do. The HMO offering is different to say a large 6 bedroom house.I think you can differentiate and tailor your offering.
And interested proposition - keep me posted.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Thanks for your views. You think a rental guarantee would help? There's no good will in a spotless credit check, a good salary, a clean reference and a junior doctor profession?
There are some guarantees - a rental contract with agreed rent. A surveyor valuation & a summary of forecast bills...
This really is like how long is a piece of string. Some 3 bed houses can just have the living room made into the 4th bedroom and you are done.
Do you need more bathrooms? Do you need a bigger kitchen? Does your council require fire alarms and fire doors?
Does it need decorating new wiring plumbing, boiler, The list us endless
Hi Derek, thanks for your comments. Agree there are different ways to convert and various considerations. But not sure what your point is. Ultimately I am looking to understand as a concept whether the financial proposition looks attractive. Do you think it varies according to the work involved? If ultimately you get the returns: both capital and income. Is it worth paying to have a ready-to-go set-up?