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I've created this post because we seem to have had a lot of newbies coming to Property Tribes recently, expressing an interest in HMOs.With all the big claims about HMO yields, it is easy to become dazzled and over-whelmed by all it's opportunities, possibilities, and wonders. There are many different strategies and many different ways of making money, including selling people the dream and HMOs for newbies seems to be a particularly popular one.It should be noted that higher returns always come with higher risks, and HMOs are no exception.There are three questions here that all newbies should consider:If you are not a cash buyer, can you access the finance needed for this strategy?Is HMO an appropriate strategy for you?Is the area suited to this strategy?Start with the first. If you are not a cash buyer, can you access the finance needed for this strategy?Have you had a conversation with a reputable mortgage broker to understand the financial products you, as an individual, has access to? (Again, please forgive me if you are a cash buyer). Without the finance in place, it is all a moot point.HMO finance is typically only available to landlords with previous experience of BTL.Financing of HMOs - insights and criteria You also need to be wary of paying an "investment" valuation rather than a bricks n' mortar valuation.Progressive Property/HMO Daddy - HMO Commercial property valuationsSecond question:Is HMO an appropriate strategy for you?HMOs are generally undertaken by experienced landlords who specialise in this area. If you are just starting out, it may not be appropriate for you and I would regard it as higher risk.Do you have tenant management skills, time to manage a larger turn-over of tenants, the knowledge of compliance etc?If the above is not the case, it negates the third question and stops you wasting time on something that does not work for you.However, let's say that you answer "yes" to the above.Third question: Is the area suited to this strategy?You need to undertake in-depth due diligence on an area to see if it is suited to HMOs.Is there Article 4 direction in place?What kind of tenant demographic rent in the area?See - HMO DemandIs there an over-saturation of rooms and not enough tenants to fill them?See - Signs of the times for PRS ?What yields can be produced in the area?Is this a good yield?Sourcing an area suitable for an HMO and finding a suitable property Read why this PT member said "No" to an HMO:Buying my first HMO - advice please! While HMOs may not be right for someone starting out, they are well worth considering for landlords with experience of single occupancy BTL who want to diversify and create higher yields.Anyone entering into this strategy needs to be clued up about all the additional legislation and regulation surrounding HMOs as there are significant fines for non-compliance.Our HMO partner, Platinum Property Partners, offers a complete HMO buying and management solution to fast-track landlords to HMO success.SEE ALSO - HMO, Individual Council Tax BandingUP NEXT - Buying decisions - help please on what to buyDON'T MISS - The Real Life Costs of Running an HMONOW WATCH:
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**
Superb thread Vanessa!
We find ourselves rescuing a lot of property investors who have been dazzled by the potential income of a 6 room HMO, without taking into account the extra work and overheads the HMO brings with it. There are still a lot of sales companies heavily promoting the HMO business model, preying on the inexperienced property investor/business person. It's easy to see how someone can get in over their head, very quickly.
All the best
Thanks for the kind feedback Helen.Yes, when things go wrong in an HMO or the landlord realises it is not for them, there are limited options imho. Far less with single occupancy BTL.1. Get it fully managed - if you can find a reputable agent that undertakes this activity - but that will eat into margins.2. Sell to another investor - but they will almost certainly want a discount.See - HMOs - My little goldmine3. Try and combine it with Air BnB. I have seen an increasing trend in this and the thought of strangers being invited to rent rooms in an HMO with existing long-term tenants sends shudders down my spine.As always with property, the exit must be considered at the beginning otherwise you could find yourself down a dead end with no way to turn.
BTL is complicated enough with out the headaches of HMO
In my opinion your running a Hotel
Not and never has been my cup of tea
Learn Change and Adapt ?????
Totally agree, I would consider myself an experienced landlord but I would not touch a HMO with a barge pole, way to risky and way too much work.
My own issue have with an HMO is after an investor has had it maybe 25 years
who is going to purchase it ???? The answer can only be another investor
so the pool of buyers is quite small and if its an investor they will want a good deal on yield so yield will dictate the price
apart from that its a lot of work
I'm pleased hopefully many people see that HMOs are hard work!
Remember, not all HMOs are the same ;->
An excellent post Vanessa and very timely.
The almost daily posts by those with not even experience of single BTLs but looking to 'get into' HMOs are truly frightening.
For the initiated the HMO business is not for the faint hearted but for a newbie it is an absolute minefield and "I didn't know" will not cut it with a lender seeing mortgage fraud by someone inadvertently being on the wrong product.
As a reasonably experienced landIord I considered HMOs but it seems that a lot of people are doing this now (there was no shortage of companies offering to do it all for me). I wondered then what would happen if my area became saturated with HMOs. It would be difficult to maintain the high yields and I could see it wouldn't be easy to get out. Seemed too risky.
I think the phrase "high-end HMO" is a dead giveaway that someone has taken the course seller Koolaid, as that's the new buzzword.On a different note, I have had discussions with Platinum Property Partners, but whilst they seem helpful and promise to smooth the journey, their fees are so high (upfront of around £5-10k and monthly franchise fees around £500) that I decided it was impossible for me to proceed with them. They'd make more from my HMOs than I would, with none of the work or risk.
There are three very different markets in the HMO sector, all have varying degrees of problems.
1) Professional - I'm guessing this is the easiest to manage.
2) HB/UC - I imagine this is the most demanding
3) Students - This is somewhere in between 1 & 2!
Are there any members who let to all three of these tenant types and could comment on my thoughts?
I only have first hand experience of student HMO's