Photo by ELM Property
When it comes to getting your hands on the most profitable HMO deals, is it all about luck or being in the right place at the right time? In my opinion and experience, the answer is absolutely no. In fact, it’s quite the opposite!
Read below or listen to the full episode on The HMO Podcast to learn about the six keys to identifying highly profitable HMO deals as you find, source and acquire your next deal!
While these ideas may not be new, they often go overlooked… Despite being aware of them, many investors fail to actively incorporate them into their deal analysis, so let’s make sure we focus on these areas moving forward!
1. Motivated Sellers
For starters, it’s important to try to surface and target motivated sellers. They may want to get rid of their property quickly for a range of reasons and are more likely to take lower offers. But are you going out of your way to find motivated sellers? If you’re just waiting for these deals to be found online, you’re not doing enough…
You need to be going direct to these motivated sellers, so to do this properly, you probably need to put a direct-to-vendor marketing strategy in place. If you’re sending out communications and trying to surface motivated sellers directly, you’re going to have a huge advantage!
Then you can build rapport with sellers and understand their individual circumstances. And I’m not suggesting that you try to take advantage of that, but understanding their motivations and finding a win-win for both parties is what it’s all about.
This takes time and commitment, and there’s a cost associated with it. But you’ve just got to be committed to doing it properly. If you need help with this, we have a content subscription service where we help a number of investors send out direct-to-vendor letters to help them secure deals and scale their HMO businesses.
If you’re interested in this or would like more information, drop us an email at info@staging.thehmoroadmap.co.uk and put “D2V Marketing” in the subject line to see whether or not you can take advantage of this.
2. Agent Relationships
We probably all understand and recognise the benefits of building and nurturing relationships and developing rapport with agents, but how many of us are actually going out of our way to do this?
It’s not easy as a lot of investors will be going into agencies, so how do you differentiate yourself? This takes time, commitment and there’s various costs attached to doing this as well. But if you commit to it, this is absolutely one of the things that can help more than anything!
These kinds of relationships might be enough to give you a crucial first look at a property or get your foot in the door. With a number of deals I’ve bought, that has been a really critical factor. In fact, a lot of stock, particularly in prime HMO markets, moves around off market, but it still gets handled by agents.
So don’t underestimate how important building relationships with agents can be. Be genuine, authentic and transparent about things, but also understand that building rapport takes time.
You’ve got to go to viewings, have conversations and follow up with them. Are you actually calling the agency regularly to see if they’ve got anything on the horizon and reminding them of what you’re looking for? If you do that consistently for long enough, that’ll get you in front of many more deals.
3. Pipeline Deals
Are you putting offers in, and then even if you get rejected, are you recording how often you’re following that up down the line? The reality is a good chunk of sales fall through… And if it falls through three, four, or five months down the line, everybody’s really frustrated at that point.
In those circumstances, agents will often go back through the backlog and call whoever they think is likely to be able to proceed quickly – instead of putting it back on the market. If they don’t know you are, they’re not going to call you.
But if you are that person and that property does come back on the market, who do you think they’re likely to speak to first? So, build that pipeline. And if you’re putting enough offers in, you’ll find that you build quite a good pipeline over time!
It’s also helpful to put this all in a spreadsheet or CRM software. It doesn’t need to be anything fancy. Keep notes on what you offered, the last conversation you had with agents, and make sure you go back and continue to follow up on anything that you offered on.
4. Ugly Listings
Find the ugliest listings on property portals, auction houses and commercial websites. If they use a poor picture of the garden or the road and maybe you can’t even tell which property you’re looking at, you’ll have less competition.
These sorts of properties can put a lot of people off straight away! But there can be loads of potential if there’s a good floor plan in a good location. So, the prices are usually better, and these deals often turn out to be the most profitable.
So, how frequently are you going out of your way to look for the ugliest deals out there? Make it part of your strategy! I guarantee you’ll find some really good things and a lot fewer people will be interested in it purely because it’s ugly.
5. Big, Boxy Floor Plans
As HMO investors, we know that we want as many rooms as practically possible inside a house. That’s where the money is, right? What you don’t want to be doing is spending too much time looking at things that’ll be tricky to convert.
What you should be doing from the outset is looking for properties that indicate big, boxy floor plans with garages and high-pitched roofs that are potentially convertible.
If you don’t have to do too much to a floor plan, if it’s easy to bang partitions up to split big bedrooms into two, if you don’t have to move staircases, if you can convert garages into rooms, or if neighbouring properties have already converted their lofts, that’s where you can add a lot of value!
A lot of us might be spending too much time looking at quite complicated floor plans that require too much change. I really like former local authority houses as they often have fantastic floor plans for converting into HMOs.
6. Key Amenities Nearby
With HMOs, you typically have young tenants, and they need to be near things like work and university. So, while you’re likely trying to make your budget stretch as far as possible and recycle as much capital as you can, it can look attractive to buy deals in peripheral locations or small towns as property prices can be cheaper.
But there may not be as much going on from an amenity point of view, and the HMO market could not be particularly established there. Then when you get the property valued at the back end, it can actually get penalised for that.
On the other hand, locations where there’s an established HMO market and valuers are accustomed to that, you’re much more likely to get a better valuation! You’ll likely pay more to get the property, but if you can really sweat that asset through the refurbishment, you’re much more likely to get that leverage at the back end.
An established market is usually determined by proximity to local and significant amenities, including big employers, retail parks, hospitals, and university campuses. The closer you are to these sorts of amenities the more valuable your property will be as a HMO at the back end.
So, those are the six essential things you should be really going out of your way to look for and focus on when you’re finding, sourcing and acquiring HMO deals! If you do prioritise these areas effectively, it’ll help ensure you get your hands on substantially more profitable deals.
If you have any questions about sourcing HMO deals, join our free Facebook Group The HMO Community. And to really get into the details of how to do direct-to-vendor campaigns and area evaluations and gain access to templates, spreadsheets and resources to help you start, scale and systemise your HMO business, sign up for 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. 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!