Hello readers,
As we come up towards the end of 2023, I’m sure you’re thinking about your strategy for 2024 and something I discuss regularly is how HMOs provide an excellent return compared to a single let.
Because of the popularity of HMOs in the Medway area, I find that a growing number of investors are contacting me to discuss expanding or starting their portfolio and the Medway towns are a great place for investors to choose!
You might also have read my recent article that explains this and how investors can benefit from double the return of a single let by choosing an HMO, so I thought I’d put together a couple of tips for those looking to start out with their first HMO investment.
1. Understand local regulations
Compliance is crucial and before even starting to look at properties, you will want to have a solid understanding of local regulations.
For example, does the area you are thinking about investing have any additional licensing requirements or planning restrictions such as article four where planning has to be sought for each HMO no matter how small.
The best place to start is by calling the local authority housing department and then speaking with other estate agents and investors to get the lay of the land. Only when you have done this is it worth moving on to investigate further.
2. Location, location, location
Location always matters when investing in property and when choosing to invest in an HMO, location matters even more. The right property in the wrong location could prove to be a very expensive lesson.
You will want to choose a location that has a high demand for shared accommodation; a growing number of existing HMOs is a good sign, however you will want to make sure you do not opt for an area that’s over-saturated.
Other things to look out for is proximity to universities, public transport, and amenities, which can increase your property’s appeal.
Within Medway Gillingham is a very popular area for HMOs, however at risk of becoming over saturated. There are a number of specific areas within Gillingham, Chatham and Rochester that I would recommend and you can find these all in my eBook which can be downloaded here.
3. Know your strategy
This is an important one because, of course you will know that your strategy is investing in an HMO, but within that what I mean is the things like the size, returns and more.
For example, if you are aiming for a six-bedroom HMO and have no budget for extending, there’s no point looking at properties where you’d be able to just fit in four bedrooms.
In addition, it’s helpful to know the type of tenant you are aiming for (ie: student, professional etc) because this will help guide the location(s) you are looking at to make that property purchase.
4. Finance
Investing in an HMO is a more expensive venture than opting for a single let because in addition to purchasing the property you need to complete a full conversion and renovation.
These additional costs mean that it’s even more important for those investing in an HMO need to have a detailed plan with a healthy reserve of 10-15% compared to a single let investor.
You will want to partner with an experienced broker who can arrange your mortgage and any other finance (such as bridging) you may need. Some investors also use private finance, leveraging other people’s funds.
Making the wrong decisions on a financial basis can risk things such as running out of funds, not being able to repay bridging finance and more. I always recommend partnering with an experienced professional such as a quantity surveyor to ensure you have not forgotten anything.
5. Furnishing and finish
You will obviously need to furnish your HMO with things such as beds, wardrobes, a desk, communal sofas and other items.
My recommendation is to use multifunctional furniture and don’t consider going as cheap as you can find. You will benefit from opting for hard wearing, quality furniture (I don’t mean John Lewis) that’s built to last.
Better quality furniture can also help attract higher quality tenants and better-quality tenants will provide you with a much more reliable investment.
Interior design is an important consideration and you can read a few more tips on my blog covering this here.
As you can imagine, there’s a huge amount more to consider and if you’d find it helpful I regularly run in depth discovery sessions which go over everything you need to know. Ideal for new and experienced investors alike, at the end of the session you will also receive a copy of my comprehensive HMO crash guide. You can book your session here.
Hasan
