Photo by Innova Property

Are you a newbie in the HMO industry? When you’re a beginner HMO investor, you’re going to make some mistakes. I certainly did when I was starting out! But it’s imperative that you don’t make the sorts of mistakes that could set you back and hinder your progress altogether.

Read below or listen to the full episode on The HMO Podcast to learn about the five most common mistakes that we see newbies make when they start their HMO investment journey and how to avoid making them.

1. Chasing too many opportunities. 

When you’re just getting started, you may be really excited and will look at lots of different opportunities and spread yourself too thin. What often ends up happening is you don’t really commit to doing enough of what you need to.

When it comes to investing in HMOs, there are loads to consider and figure out, so if you’re not really focusing on that single objective of either buying your first HMO or getting your first rent-to-rent deal, you’re doing yourself a disservice. 

Because of that, when you’re just getting started, make sure you’ve got total clarity on your objective, and focus on everything that will deliver that result… and nothing else! In time, you’ll be able to pursue additional opportunities but just not at the beginning.

2. Being too optimistic about the numbers in a deal. 

It’s important to really understand the implications of being too optimistic with your deal analysis. If you’re too optimistic about the rental income and occupancy levels you’re going to achieve or refurbishment costs, this can influence what you can earn at the back end of a deal, and it can even impact your re-evaluation. 

Don’t just make the numbers work to fit the outcome that you want. It’s okay to look at pessimistic and optimistic positions, but you really need to make sure that you stack deals up based on realistic scenarios. 

You could have a deal that looks great on paper, but because you were too optimistic, the numbers don’t come to fruition and leave a big gap to fill. And if there’s a significant gap, you may have to find a way to repay the money you borrowed to do the project in the first place!

You need to avoid this happening in the first place, and the best way to do that is by re-engineering your deal on day one. You may need to either go back and renegotiate, or ideally, you would negotiate a better price in the first instance so that you can achieve the numbers that you need to on a less optimistic view.

3. Underestimating the time it takes to do refurbishments. 

Any building work takes a long time, and it’s not always just about the labour that needs to be carried out. Your refurbishments and renovations might involve building regulations, drawings, measured surveys, and structural engineers. Your builder might be slow due to holidays or sickness, and the materials you need may not be available for weeks and weeks. 

Any of these can slow down refurbs, and most of the time, it’s going to take longer than you expect! So, be realistic and build additional time margins into your contingency plan. This can be hard as a newbie, and you’ll likely get better with this as you gain more experience.

In the meantime, ask more experienced HMO investors and relevant tradespeople and property professionals about what your expectations should be and what else you should be thinking about and considering. With your research and the advice you receive from others, you can start to build a more realistic timeframe. 

4. Not prioritising the activity of raising and managing finance highly enough. 

Funding is one of the key pillars of any HMO business. Because of that, most people are aware that getting finance together is really important, but many don’t prioritise what’s involved in actually getting it on the table. And if you’re going to rely on raising private finance or securing mortgages, a huge amount of work needs to be done.

I see a lot of beginner HMO investors leaving this much too late. They wait until they get an offer accepted or get prices in for a refurb before they realise they’re going to need to find more funding. However, this limits the number of investors and lenders they’ll be able to speak to. It also puts potential investors under pressure to make a decision quickly.

So, when it comes to raising and managing finance, make sure this is on your radar at all times. Start building a finance-raising strategy and set clear fundraising objectives. Keep in mind that if you want to scale up, you’re going to need to focus on this, and the best time to start is now – not when you need it!

5. Spending too much money and time on your website and branding. 

If you’re buying your first HMO or agreeing to your first rent-to-rent deal, you don’t need an all-singing, all-dancing brand and website. Of course, you probably need to have something in place, but it doesn’t need to be fancy or expensive. 

Keep it quick and cheap. Later on, you’ll be able to invest further in this area. And over time, you’ll find that your business strategy progresses and evolves, which will impact what you need from your website and branding. It’s really something you’ll have to grow into. 

So, don’t go out and spend loads of money on a website and branding on day one. Focus on securing deals, raising finance, building your network, and developing your knowledge before you spend much money on your brand and site.

Those are the five common mistakes that I want you to avoid making as a beginner HMO investor! You might have to be strict with yourself, and if you’re already making some of these mistakes, you should consider changing your habits now. 

To start and scale your HMO business and develop your knowledge in the industry, including about raising finance, sign up for The HMO Roadmap! And for support from experienced HMO investors, join our free Facebook Group The HMO Community.

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!