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  • HMO & Multi-Lets

    Property Investor Newbie - HMO conversion vs. New House

    Hi all,

    I'm a first time poster and newbie to the forum and realistically a newbie to property investment. I do own 2 rental properties, but my involvement with them beyond occassional renewals or instructing my LA to find new tennants has been minimal. I've not really been focused on maximising the value of them or in growing what I have to anything substantial. I'm now at the point in my life where I have a challenging job, a new(ish) family (4yr old girl and 1yr old boy) and I'm looking for a way to free up my spare time so I can enjoy myself & family more. I'm hoping that property will help me here, although I recognise that this is going to be a long-term solution.

    I currently have access to around £25k, so my immediate intention was to purchse another property, however, I'm now wondering whether I would be better off spending the money converting my terraced house to a HMO.

    The house is currently a 3 bedroom house with all bedrooms on 1st floor and the bathroom & toilet on the ground floor, it has a cellar and a loft but these are currently unused. The property is close to the town centre and also to the local university and there are a number of other HMOs in this area let to students I believe. I currently get £535 pm, so I'm wondering whether it would make sense to convert to a 4 or 5 bed and perhaps install a bathroom on the 1st floor (if I go with a 4 bed property).

    I've cheked out sparerooms.co.uk and I can see rooms in the £70 - £105pw category so this would seem like a sensible conversion but what I don't have is any understanding of the volume of demand. I'm also conscious that the changes proposed to student fees may have an impact on my potential customer base and in addition I probably need to understand more about HMO conversion if I'm going to go this route. Finally the road itself has limited parking so I'm conscious that I may not get planning permission if I wanted to increase the number of bedrooms.

    I'd really appreciate any thoughts you might, any pointers you can give around a move to HMO or indeed any warnings or gotchas that I need to watch out for.

    Thanks in advance and apologies for the long post.

    Alex

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    Hi Alex,

     

    I think that going down the HMO route is good thinking but it is an entirely different strategy, and a very high maintenance one.I am currently investigating buying leasehold holiday lets.  The deposit is £20K and the company offering them provide the finance, so no need to go to a bank for a mortgage.  The finance is based over 10 years on a repayment option, so you will have 100% cashflow after 10 years.  The leases are for 99 years.

    You can buy a brick built house from £70K.The company can manage the property and rent it out for you.  The yield is typcially between 11 and 14%.This might be an option for you.  I am investigating it myself and will be reporting back, as it is not my policy to recommend anything that I don't actually invest in myself.Let me know if this is of interest.  I can of course let you have the details and you can invesigate it yourself.

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    Hi Alex

     

    "I've cheked out sparerooms.co.uk and I can see rooms in the £70 - £105pw category so this would seem like a sensible conversion but what I don't have is any understanding of the volume of demand."

     

    I went on Matthew Moody's one day HMO training course last year (£97 at the time, which I felt was fair value). Amongst other ideas, Matthew suggested the following:

     

    1) As a rule of thumb, the town/city should have a population of 50,000+ and spareroom.co.uk should have 50+ 'rooms required' adverts from tenants. You could try contacting a few of these people to gauge the relative importance of car parking, etc.

    2) Place a 'test advert' on spareroom.co.uk, easyroommate.com and gumtree.com to gauge demand and volume. I can't think of a better way of finding the answer myself!

     

    Having said the above, before spending too much time pondering whether an HMO might work, I'd advise that you find out whether running your house as an HMO is actually possible at all. Give the council a call and talk it through with an HMO officer to discover whether you'll need a mandatory or additional license and, if so, what's the crtieria is. (For instance, I know that my council is particularly interested in car parking for licensable HMOs and so that might steer investors towards slightly smaller properties which could be legitimately operated as non-licensed HMOs.)

     

    I second Vanessa's opinion that the general consensus is that HMOs require much closer management than single-lets (I don't currently run any HMOs myself, but have been researching them for a wee while and have met quite a few HMO investors). I recommend a read of "House Share Hero" book to get you started!

     

    Good luck and let us know how you get on,

     

    David

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    Hi Alex,

     

    Welcome to the forum. It is, as you will find or probably found already, a place of sharing with lots of info.

     

    I run HMOs, and I know how management intensive it can be. On that basis, I wouldn't advise you, as a newbie investor, to go down the HMO route, unless you have time to manage it, or can find a good agent that will manage it for you ... finding a good LA is a task in itself, and very few LAs do HMOs. So a good letting agent that will do HMOs is a challenge and a half, but do-able.

     

    HMO conversion - is another subject in itself. Mandatory licensing applies to properties with 3 or more floors, and 5 or more tenants. Smaller ones on 2 floors don't need licensing, UNLESS, the local authority has taken advantage of the option for additional licensing, and require all HMOs to be licensed.

     

    The cost of conversion will therefore vary, but there are certain minimum standards for space, amenity and fire, that you must comply with. As has been advised, have a word with the relevant council officer for their interpretation/requirements for HMOs.

     

    Some councils are still also intent on applying the mandatory planning requirement for HMOs, so check that out too.

     

    You need to ascertain demand before going down this route. Do your due diligence well.

     

    Whatever you do, management is key to making this work!! Good luck.

    blog: https://www.GrumpyOldLandlord.com, twitter: @GrumpyLandlord; facebook: Grumpy Old Landlord

     

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    The profit of knowledge is in its application
    TumiHawkins.com

    All,

     

    Great feedback thanks. I suspect based on this that getting into the HMO game right now probably isn't sensible as I have a heavy workload that would preclude me being on the front foot day-to-day. This is probably a strategy I should look at once I've moved to a position where I can be more proactive or once I've found a decent LA. I'll speak to the council anyway and try to get a feel for whether or not this is even possible.

     

    Vanessa, definitely keen to hear more about the opportunity you're looking at, will try to catch you for a deeper discussion once you have more detail.

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    Hi Alex,

     

    HMO's a clearly a good strategy, as a slight aside would it be viable for you to consider student lets? Jo King is the person to speak to on this imho.

     

    Another option might be to JV on a property in order to raise some additional cash, had you though of this?

     

    If you want to chat about this off-forum please don't hesitate to contact me.

     

    (I'm looking forward to hearing more about Vanessa's holiday lets too!)

     

    RobCommercial Management & Property Consultant, Wakefield, West Yorkshirehttps://www.walkerfox.co.ukE: rob@walkerfox.co.uk M: 07960 753550 T: @walkerfox S: Walkerfox

     

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