Photo by MW Properties

If I had to build my HMO business again from the ground up, knowing everything that I know now, how would I do it? This is a question that I’ve been asked countless times over the years. I’ve given this a lot of thought, and honestly, there’s a lot I’d do differently.

Read below or listen to the full episode on The HMO Podcast to find out what I would do if I had to start my property business from scratch but I had the advantage of knowing everything that I’ve learned over the last 12 years of building and running my property businesses. 

1. Set Clear Goals and Timelines

The very first thing I would do is set clear goals and timelines. This is something I didn’t do when I first started my property business. I feel that lack of clarity and planning really impacted what I was able to achieve in those early years. I could’ve done so much more if only I had had a clear plan!

Start by zooming out. Forget the details for a minute (that’ll come later). Think about the whole reason why you want to start a property business. It’s really important you do this at an early stage because if you don’t, the real risk is that you end up building a business that doesn’t actually serve your personal goals and objectives. 

2. Work with a Mentor & Embrace a Community

The second thing I’d do at a very early stage is to get a mentor and immerse myself in a community. That’s going to be the essential motivation, accountability, and support that I need – especially when things get hard.

Being surrounded by people who really understand why I’m doing this, what I’m trying to achieve, and what I’m going through can help me pick myself up when things get difficult. And finding the right mentor and community for you is crucial.

I first started investing back in 2009, but I didn’t start working with a mentor until 2015. When I look back, working with my mentor John Paul was unquestionably the single best investment in my business. Everything started to really take off at that point.

I do say this cautiously as I do mentorship myself. It would be easy for me to just say that because it fits a narrative. However, it was such a key moment in the growth of my property businesses. 

3. Engineer Flexibility Within Your Current Job

When creating a property business, I wouldn’t quit my job right away, and I personally didn’t – I gradually transitioned. But I would engineer a more flexible working situation as quickly as possible to give myself more time and the ability to step in and out of the role. 

In the early stages, I struggled because I was working full-time as a physio, and I didn’t have much time to plan and build my property business. I was doing this on evenings and weekends, so I would create a solution as quickly as possible to free up more time. 

I eventually transitioned to contract work, which allowed me to earn similar if not more money but on a much more flexible basis. That allowed me to compartmentalise my schedule and start carving out time to actually build my business. 

4. Start Creating a Cash-Flowing Business

In the first two years, I’d focus on building a business that requires a low-capital input but can generate a high amount of cash flow. I’d try and create £100,000 a year in a tax-efficient structure as soon as possible.

I’d start with building a rent-to-rent business. It’s an incredible model and is very scalable. In the first and second years, I would target doing four rent-to-rent deals per year that generate £1,000 per month. That would amount to £48,000 at the end of the year. 

At the same time, I’d work on getting a sourcing service off the ground for investors wanting to buy HMOs. That may not necessarily be what I start off with on day one, but that’s what I would graduate into through the first two years. You could earn £10,000 every time you sourced a decent property. I’d target doing four every year, which would add up to £40,000.

Additionally, in years one and two, I’d aim to do one joint venture project a year with someone who can bring in capital. This means I’m not shouldered with the burden of having to put lots of cash in, but I’d handle finding the deal and doing the refurbishment.

5. Reinvest Into Your Business

As I start generating income, I’m going to reinvest absolutely everything into my business. So, I won’t draw a bunch of money out, which I’d have to pay personal tax on anyways. At this point, I’ll be working on building a good set of accounts. Moving forward, I’m going to need that to satisfy lenders to purchase my own properties.

Additionally, to grow beyond those first couple of years, I’m going to need to start building a team. Firstly, I would hire admin staff. That’s going to be essential because, at this point, I’m not going to be able to do it all myself.

I’ll need people to manage my properties and handle the admin. While hiring staff isn’t necessarily immediately income-generating, it will give me the capacity to start scaling up. 

6. Scale Up Recurring Cash Flow

Moving onto years three and four, I’d really start to focus on scaling up recurring cash flow. I’d go from trying to do four rent-to-rent deals per year to 10. 

At the same time, I’d continue scaling up my sourcing service for private investors and aim to do about 10 projects per year, but I would fold the management of their properties into it and manage bigger refurbs for them. That could get the fees up from £10,000 per project to more like £15,000. 

7. Build Equity By Buying Your Own HMOs

While I’m scaling up my rent-to-rent business and acquisition and sourcing service, I’d also switch my focus from buying a couple of HMOs through JV partnerships to using private finance. This would allow me to hold all of the equity and cash flow in what I’m buying and developing.

I’d make a goal of doing one owned HMO a year. I can then turn them over, recycle cash through them, and pay my investors back. If I get all of this right, by the end of the third and fourth years, I could be earning more like £350,000 a year in recurring cash and about £50,000 in equity from the deals I’m doing myself.

8.  Focus On Growing Your Portfolio 

In years four and five, I would start taking cash off the table and out of my business. Up until this point, I’ve been reinvesting into my business every single year. Now I’m going to really shift the focus onto building my portfolio. 

Before now, I relied on JVs and private finance. I can still do that, but if I’m able to take some cash off the table, I can really start to scale even more quickly. It means I’ll be much more flexible, pay less debt out to investors, and be less reliant on them. I would target buying around three student HMOs every year for a couple of years. 

I reckon in a year, 18 months, or certainly, two years down the line, I could get my yearly recurring cash up to £400,000, in addition to £150,000 in newly generated equity by buying more HMOs.  

9. Engineer Yourself Out Of Your Businesses

In order to really focus on growing my portfolio, I’d start engineering myself out of my investment and management business, rent-to-rent business, and sourcing and acquisition services. 

Make sure your staff is capable of running them. I’d still manage these and oversee them at a high level, but I now need to take my time and some of my cash out of that business to start investing quite aggressively into the assets that I actually want to own. 

10. Plan to Exit Your Investment & Management Business

Moving onto year five, I’d plan an exit from my investment and management business. I’ve done all this work and scaled it. I may have 20 to 30 odd properties, as well as the income it’s generating, making the business have inherent value.

So, I’d look at selling that business and releasing a huge amount of capital from that. I might not get all of it at once, but that’s going to allow me to take my time back and refocus on other things. 

11. Ramp Up Building Equity

From the fifth year and onwards, I’d start investing in commercial to residential conversions and really ramp up building my equity. At this point, I’d be generating a lot of cash, but what I want to do is build more stability for the future, and for me, that means building equity. 

Developments are the main way to create big chunks of capital. I’d also continue buying student HMOs with the cash I’m generating, work with some of those private investors, and recycle some of the capital from my commercial to residential projects.

12. Start Thinking About Your Next Business

Once I’ve exited my management business, I’d start thinking about the next business I want to build, whether it would be something similar or maybe a digital business. 

In five years, I would have built a business, sold a business, built my own portfolio, and been generating a lot of cash every single month. Once you get to this point, the world really is your oyster!

So, there you go! That’s how I would do it if I went back and started my property business from scratch. I hope this inspires and motivates you and shows you that you don’t have to put ridiculously big targets in place to create a great business. The results can really compound and the fact that everything falls into itself means it’s very scalable. 

We’d love to hear how you would do it if you started your property business from scratch or what you’re planning to do now that you’ve read this! So, come on over to The HMO Community, our free group on Facebook, and tell us what your goals are for the next five years and how you’re planning to do it.

And if you are serious about investing in HMOs and scaling your property 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!