Finding Opportunities for HMO Investors

Photo by Property Touch

Following the budget announcement, I thought I’d discuss some opportunities for HMO property investors arising from these changes. It’s easy to focus on the negatives, but I came across a quote this week about the rules of the game changing; you just need to understand the new rules, which really resonated with me. Everyone is in the same boat, and we can choose how to respond to the new regulations.

Stamp Duty Increase

Let’s start with the obvious: yes, this is a pain—there’s no getting away from that. However, I believe it will lead to a reduction in house prices where properties need to be purchased by investors. 

If you’re buying a property that is in good condition and requires no work, you will always be competing with home movers, putting you at a disadvantage. Home movers don’t worry as much about ROI, so they can afford to spend more and potentially price you out. This isn’t the case with properties in poor condition that require work to be habitable. 

Choose wisely; find properties where you can easily add value, and include your costs in your deal stacker. This may push some properties out of budget, but it will affect everyone, so prices should drop if they cannot sell.

Using bridging finance is ideal for these types of deals; it allows you to buy properties that are not in mortgageable condition, then add value to withdraw funds later. Just ensure your new numbers stack up!

Quick Completions

As an investor with access to bridging finance, you can act quickly on purchases, which is a significant selling point. With the uncertainty in the market following the budget, some home movers and investors may decide to wait until spring to make new purchases, leaving plenty of opportunities for those who do not. Take advantage of where others hesitate! There’s still time to get bridging completed before Christmas if the vendor wants to move quickly.

We are seeing a lot of auctions for this reason as well. Vendors seek a quick sale and certainty regarding dates so they can make plans. I understand why they do this; however, I would advise caution in a few areas to ensure you, as the buyer, are getting a good deal:

  • Have you taken into account all the upfront fees and potential increases in legal and broker fees, as this is an auction?
  • Have you checked the legal pack to ensure you can complete the purchase?
  • Have you assessed the work needed and priced it realistically?
  • If there is a tenant in the property, are you prepared to keep them, as obtaining vacant possession can be problematic?

Approach the auction with your eyes wide open, but I believe there will be opportunities where some investors choose to stand back and observe before making a purchase.

Tired Landlords

We are increasingly seeing tired landlords in the market. With regulatory changes, the renters’ reform bill, consistently high interest rates, and a new government, many people are deciding to exit the market.

Opportunities will arise from HMOs in Article 4 areas that need renovation, tired properties with tenants (where landlords do not want to leave a vacant property for sale), and properties in poor condition.

These are great areas to target, as you generally won’t be competing with home movers. Again, speed is essential, particularly if the property is vacant and the landlord is still paying a mortgage.

There are a few standout issues to consider:

  • If there is a tenant in the property, you need to understand their situation. Requirements for rentals have changed significantly, leading to situations where tenants cannot move or cannot afford to move, and are being advised to stay put. Understand what you are buying.
  • In properties with tenants, we are observing issues where valuers cannot access all rooms. This will always require a reinspection, which will be at your cost.
  • If a property is in Article 4 and has a licence, this does not necessarily mean it has planning permission. You need planning permission or a certificate of lawful use for a mortgage, so do your research!

As always, with change comes opportunity. If there’s anything you would like to discuss further, please get in touch here.

 

About the Author:

Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.