A Guide on Finding Your Next HMO Investment

If you’re looking to build and scale your HMO portfolio, it can be challenging to constantly be able to find that next HMO investment. This process can be overwhelming, and it can be tricky to even know where to start and what to continue to keep up with!

There are of course lots of things to think about and do when it comes to finding the right HMO properties for you, your strategy and long-term objectives. So, here we’ll guide you through what to do to help you be able to keep finding your next investment and improve your overall sourcing strategy!

1. Find motivated sellers.

For starters, it’s essential to find ways to surface and target motivated sellers. They may want to get rid of their property quickly for a whole range of reasons and could even be open to taking lower offers. To do this, you can’t just wait for deals to be found on property portals!

Direct-to-vendor marketing

To go directly to motivated sellers, you might need a direct-to-vendor marketing strategy. This is all about sending out communications to try to directly surface motivated sellers. If you do this the right way, you can have a huge advantage.

You can build rapport with them over time and try to understand their individual circumstances and motivations, which can help you find a win-win for both parties. However, this won’t happen overnight! It takes time and commitment, and there’s a cost to actually send out D2V mail.

If you need help with this, we have a content subscription service helping a number of investors send out direct-to-vendor letters to help them secure deals. If you’d like more information about this, drop us an email at info@staging.thehmoroadmap.co.uk and put “D2V Marketing” in the subject line to find out whether or not you can take advantage of this.

Building relationships with agents

Building and nurturing relationships and developing rapport with agents is crucial to helping you find HMO properties, and it’s something you need to go out of your way to do and prioritise.

A lot of investors will be going into agencies, so how do you differentiate yourself? This will of course take time, commitment and there’s costs attached to it as well. But if you really commit to it, this is one of the areas that can help you more than anything else!

These types of relationships could be enough to give you a key first look at a property that fits your requirements or get your foot in the door. So much of stock within prime HMO markets moves around off market; however, they still often get handled by agents.

It’s important to not underestimate how key building relationships with agents can be. To do this effectively, be genuine, transparent and authentic. You need to go have conversations, book viewings and follow up with them.

So, make sure you’re calling agencies regularly to remind them what you’re looking for and see if they have anything on the horizon that fits that. If you do that consistently and for long enough, that’ll help you get in front of the right deals time and time again!

2. Look for the right types of properties.

To help you find the right properties for HMO investment, it can be useful focusing on searching for ugly listings with large, boxy floor plans, so start keeping an eye out for these sorts of properties on portals, auction houses and commercial websites.

Ugly Listings

Especially if you find properties with a poor picture of the road or garden and maybe you can’t even tell what property you’re looking at, you’ll likely face less competition. They can put a lot of people off, but there could still be loads of potential for you if there’s a good floor plan in a good location. This can mean the prices will be better, which can make these deals more profitable.

Make sure you’re going out of your way to look for ugly properties. If you get in the habit of doing this, you’ll find some great deals and you’ll find a lot fewer people will be interested in them.

Big, Boxy Floor Plans

Ideally, HMO investors want as many rooms as practically possible inside a house… That’s where you can earn more, right? Because of that, you don’t want to be spending too much time looking at properties that will be too tricky or challenging to convert.

From the outset, focus on looking for properties that indicate large, boxy floor plans with high-pitched roofs and garages that could potentially be convertible. The more you get used to keeping an eye for these kinds of properties, the easier you’ll find wading through listings to find the right deals.

If you have a good floor plan to start with, if it’s easy to put up partitions to split large bedrooms into two, if you don’t have to move staircases, if neighbouring properties have converted their lofts already and if you can also convert garages into rooms, that’s how you can really add a lot of value to a property.

So, make sure you’re not spending too much time looking at overly-complicated floor plans that would require too much work to make it into the property that you need. I personally keep an eye out for former local authority houses as they often have useful floor plans for converting into HMOs!

3. Follow a process when viewing properties.

Having the right process for undertaking property viewings can ensure you know what you need to do when looking at properties you potentially want to buy. This can save you time and money and can even help give you an advantage over other prospective buyers!

Before the Viewing

Before you go to any viewing, you should research a range of areas in detail, such as local property values, the specific location and how long the property has been on the market. It’s also helpful to drive around the local area at different times of day.

Make sure you look at what the traffic is like, where residents park, the way neighbours behave, if the street scene is quiet and where your target demographic is walking. These can all start to help you get an idea about the location’s popularity, what it looks like and how it feels.

So, get clued up on the location and property as much as you can. I’d also be sure to print out a copy of the floor plan to bring to the viewing.

During the Viewing

The first impression you give to the vendor or agent is very key. Actively build rapport with them from the beginning by being friendly and polite.

This might sound weird, but the first thing I do is get a good smell of the property… It’s incredible how much you can find out about a building or property by the way it smells! Does it smell fresh and well-maintained or does it smell like damp or cats? Or does it smell like something is being covered up with a fresh coat of paint?

Once you’ve taken that in, get a general impression and feel of the house. Spend a couple minutes going into each bedroom just scoping the rooms out, feeling the flow inside the property and checking for anything that stands out immediately.

If you’ve seen anything that straight away makes the property unviable for you like there being a tiny box room that wasn’t shown clearly on the floor plan, you can walk out at this point. Just be honest about why it won’t work for you.

However, if you’ve been encouraged and haven’t noticed anything that rules out the house automatically, go back through the property in more detail with the floor plan you printed out. Get key measurements, and make sure all of the bedrooms are of an appropriate size and suitable for the relevant amenity standards.

Pay attention to the state and age of things like the electrics, plumbing, fuse board, kitchen and bathrooms. Also pay attention to the flooring, windows and condition of the walls. These are all areas where you could spend substantial sums of money.

While you’re walking around the house, make sure you get wide-angle photos from every dimension in each room, and spend some time visualising what might be possible to do with the space.

On top of that, spend some time scoping out the outside. Take photos of things like patios, fencing and the ground. Keep an eye out for any cracks and any issues with the roof or guttering.

Finally, check out the neighbouring properties for renovations that you may be interested in doing to the property, such as converted lofts or garages, dormers or extensions. This can give you a look at whether you may or may not struggle to get planning permission where it’s required.

After the Viewing

Once you’ve finished the viewing, scribble notes down about any concerns you may have, things you need to pay particular attention to or anything you need to make sure you don’t forget.

Before leaving the property, it can also be beneficial to ask some direct questions to the vendor or agent. You can ask if they’ve received any offers, how many viewings they’ve had and if they’ve had any offers. You might not get an answer to all of these, but some agents will tell you and you could gain some valuable information.

Then, once you get back to the office or home, sketch out adjustments to the floor plans and any renovations you’d plan to do.

4. Access HMO deals.

Once you have a good idea and plan of what you want to do and what could be possible with the property, start to factor this all in. Use this information to start stacking up the HMO deal.

You always need to evaluate what a deal means for you. If you don’t do this, you would be building your investments on rocky foundations. Make sure you’ve considered all of the things that could go wrong, ensure the property and location fits your strategy and objectives and check the numbers are attractive enough.

It’s crucial to understand what actually makes a good HMO deal. You must be able to construct a deal appraisal effectively and interpret what the numbers actually mean. If you’re not confident in this area, spend time looking at deal evaluations, the numbers involved and how to interpret what this information is telling you.

To assess HMO deals, work through a few scenarios and stress test the numbers, which will help you then pull out the price. However, be sure to leave scope to negotiate as it’s rare that a first offer is accepted. If you need help with this, sign up to The HMO Roadmap to gain access to our HMO Deal Stacker.

5. Put in offers consistently and follow up.

Another key thing is being strategic about when you put an offer in. If it seems like moving quickly will be advantageous, get your offer in soon. However, sometimes it’s beneficial to wait a bit and feel out if they’re taking offers from others.

Additionally, even if you think your offer will be rejected, it’s still important to put it in and make sure you’re following up down the line. A good portion of sales fall through, and if that occurs a few months down the line, everyone is naturally frustrated at that point…

When that happens, agents will typically call whoever they think will still be interested and be able to proceed quickly – instead of putting it on the market again. If they don’t know you are interested and able to do that, they won’t call you.

But if they do, who do you think they’ll want to call first? This is why it’s important to build a pipeline. If you consistently put offers in and follow up regularly, you’ll even find that you build an impressive pipeline over time!

To help you keep up with this, it’s useful to put this all into a CRM software or spreadsheet. Keep up with what you offered, the last conversation you had with the agent or vendor and make sure you continue to follow up on any properties that you offer on.

6. Understanding your funding options.

Another important area of finding your next HMO investment is understanding how you’ll finance and fund your HMO deals. As UK inflation has dropped to 1.7%, which is below the Bank of England’s (BoE) target of 2%, this has led to lenders dropping mortgage rates over recent weeks.

On 7th November, the BoE also cut interest rates by 0.25% to 4.75% for the second time this year. This is good news for investors as this is already being factored into mortgage rates, which have hit a two-year low over the autumn, according to figures from Zoopla.

The Bank is forecasting inflation to rise slightly again over the next year to around 2.75%, so there is unlikely to be another cut in December. But lower borrowing costs are expected to continue to support demand into the new year.

If you will be using a mortgage to invest in your next HMO, work on getting yourself in a super lendable position and have certain documents and deal prospects together. It’s also extremely beneficial to work with a mortgage broker experienced with HMO and other specialist mortgages to help you navigate the entire process.

For all of the training, guidance and resources to help you find HMO investments and to gain access to our HMO Deal Stacker, become a member of The HMO Roadmap. And to be a part of our community of beginner and veteran HMO investors, join us in 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, 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!