What does it mean to become a HMO expert and why is this so important? Becoming an expert in HMOs and your investment locations will ensure you are unquestionably confident in what you’re investing in.
HMO investment can be very complicated. The stakes are immensely high as we’re talking about massive sums of money, and there’s just so much we can get wrong! Because of this, it’s essential for HMO investors to become their own experts.
Read about the 10 things you need to master if you want to consider yourself an expert in your local HMO market below or listen to the full episode on The HMO Podcast.
If you get this right, you’ll be on the right path to building a solid, future-proofed, and very profitable and sustainable HMO business!
1. Population Data
The first thing you need to master is the population data in the area you’re investing in. What are the statistics telling you? What sort of data can you get your hands on that gives you the confidence to invest there? For instance, how many people are actually living there that need accommodation like the one you’re proposing to develop?
You want to be able to confidently construct a narrative that supports your business plan, and the more you know about the local population, the more confident you can be in your investment decisions.
2. Locations Tenants Want to Live In
The second thing you need to master is understanding the locations prospective tenants want to live in on a micro-level. How many of their peers also live in that location? You need to ascertain right down to the street level where your strategy will work best. It could be the case that the wrong street means your investment doesn’t work.
This is somewhat subjective and not easy to establish, but you must commit to figuring it out. To some extent, this means getting on the ground, and it’s one of the reasons why investing close to home is much easier.
3. Where Large Amenity Sites Are
You also need to master where the large amenity sites are, such as local employers, key transport links, and the local university campus. Being close to these locations is often extremely important to tenants.
This will help us understand where it’s best to invest and where our properties are more likely to go up or down in value. This is incredibly crucial for the future growth of our HMO properties and business as a whole.
4. Key Relationships to Build
As there are so many moving parts with HMO investment, you need to build key relationships with people that can help you get to where you want to go.
Think about what relationships you can establish locally with builders, suppliers, and agents. It’s much easier to make a decision about investing somewhere if you already know people who can help you.
If you haven’t established any relationships yet, that’s not to say that you shouldn’t invest there. However, there is a degree of risk, and you’ll want to reduce that risk as quickly as possible. So, the sooner that you can establish these sorts of relationships, the better!
5. Sales Data
Understanding local sales data can help you ascertain what the value of your project should be. You shouldn’t rely on anybody else, particularly agents, to tell you what properties are worth. Start by finding out what the average pound per square foot is in the particular area you’re investing in.
This should be a crucial part of your decision-making process about whether you buy a property and the price that you offer, and it will help you know whether you would be buying at a good or bad value and ascertain what something is going to be worth after refurbishing it.
To do this, set up a spreadsheet and collect a load of sales prices and the size of those properties. From that, you can work out what the average pound per square foot is. If you want a shortcut, the Deal Stacker in The HMO Roadmap provides a tool that works this out for you automatically after entering the relevant postcode.
6. Local HMO Market
Another important area to master is figuring out where your product will sit in the market. That means you need to understand the ins and outs of the local HMO market, including things like room prices, property specs, and what the competition is doing.
If you want to figure out how to get the top rents and create the best product, look at this information in detail. It’s too risky to make assumptions or go off what somebody else told you. You need to figure this out for yourself!
7. Planning Policy
When it comes to HMOs, planning policy has become more involved and more complicated. For starters, you need to know if there is an Article 4 direction in place, and if so, what the thresholds, density limits, and likelihoods of you getting a HMO approved are.
You also need to be aware of what the council wants to see from you, how you’re going to prove and demonstrate the use, the attitude the local authority and planning department have towards HMOs, and what the timeframes are.
This all varies massively across the country. In some areas where there are really aggressive planning policies towards HMOs, it impacts everything, right down to permitted development rights. So, this is something you really need to be on top of.
8. Licensing Requirements
You also need to figure out what’s required from a HMO licensing point of view. There are mandatory guidelines you have to comply with across the country if you have five tenants or more.
But on a local level, there can be additional requirements, particularly with amenity standards and the minimum size of bedrooms, and it can be very different from one local authority to another.
So, figure out all the restrictions your local authority imposes on HMOs. You can start by researching the local authority framework and relevant licensing policies. Make sure you get this right because it can be a very expensive mistake, particularly if the property you end up buying doesn’t fundamentally meet the minimum standards.
9. Capital Appreciation Prospects
Another key area to understand is what local infrastructure and regeneration plans are in place that you could benefit from over the long term. We all should buy HMOs based on yields, but the majority of wealth is actually created through capital appreciation.
Investing in the right places, where there are exciting regeneration plans and a lot of local infrastructure development happening, could push your property values up over time. Then, you can recycle that capital out, allowing you to continuously build your HMO portfolio.
As massive amounts of capital are needed to invest in HMOs, capital appreciation is essential to building a successful and sustainable HMO portfolio. So, understand why properties go up in value and have the foresight to invest in the right area. Your future self will absolutely thank you!
10. Who Will Manage Your HMOs
The final area to master is all about figuring out who is going to manage your property, both in the short and long term. It’s important to be aware of what’s all involved with HMO property management and how it’s going to be done.
Too many people investing in professional HMOs especially aren’t giving this the time and attention that it needs. Managing these properties is extremely hard work. That’s why there are very few agents that provide these services. So, you need to get to the bottom of who’s going to manage your HMO now and in the future.
What if the agent you’re proposing to use disappears? What if they turn out to be no good? What if the property is several hundred miles away from where you live? This is really pivotal when it comes to questioning the scalability of your business.
Figure out how you can make this work long-term. A good property manager is essential when starting to build a portfolio of professional HMOs. If you don’t have one or can’t find one, then you really need to question whether investing is going to work in this location.
So, there you go! Those are the 10 things you need to master if you want to consider yourself an expert in the HMO field within the particular area that you’re investing in.
If you don’t know all of these things, don’t worry! You don’t need to be an expert in all 10 areas before starting your HMO business, but the more you know, the more likely you are to get better results and reduce the risk of anything going seriously wrong.
If you want to level up your HMO property investment skills and scale your business, become a member of The HMO Roadmap today!
About the Author:
Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!