Photo by J.O. Property

As investing in property and especially HMOs is so capital intensive, it’s important to think about how you’ll fund your HMO portfolio and business. How are you going to continue to find the cash you need to buy your next property or do another refurbishment?

Funding will be a particularly key part of every HMO portfolio and business in 2023. It’s crucial that HMO investors take the time to understand how they can continue to master this area, especially amidst the current economic climate.

In this blog post, we’ll take an up-to-date look at the mortgage market, how to raise and utilise private finance, and what you need to understand about recycling capital. We’ll also include some of our top tips to help you improve your funding strategy and scale your HMO business!

Keeping Up with the Mortgage Market

Historically low interest rates are likely over as rates have risen quite substantially over the past year. At every Bank of England rate-setting meeting in 2022, the base interest rate was increased, and further rises are expected this next year.

At the same time, lending requirements could get stricter, so it’ll likely be extremely beneficial to focus on getting yourself into a super lendable position and ensuring you have all of your relevant financial documents in order.

Recently, we sat down with expert HMO mortgage broker Ellie Broadhurst, who works at Baya Financial in partnership with The HMO Roadmap. She shared her valuable insights on what she forecasts 2023 will hold when it comes to specialist lending and her advice for accessing HMO mortgages.

Ellie comments: “With interest rates still higher than they have been in some time, profits for landlords will be squeezed. This is when investors need to be savvy with the types of property they buy, and what works they carry out – making sure they are as low-cost to run as possible and are future-proof. Lower profits don’t mean that property isn’t profitable though, just that expectations need to be adjusted!”

When it comes to accessing mortgages, Ellie has said it’s more important than ever to be prepared as lenders are scrutinising applications like never before. So, here are her top tips:

• Get on the voter’s roll – and keep originally posted proof of address for the last three years
• Keep your money movements to a minimum, so it’s not too complicated to show proof of deposit
• Speak to and engage with a good broker (by good I mean communicative, knowledgeable, and experienced in the type of property you are interested in). This will help you understand rates, costs, and what is achievable with your experience.

“Your broker really is key to understanding the market at the moment, so for example I will always spend time with potential clients to explain how it works, the current market conditions, and some examples of what else we have completed which is relevant,” Ellie adds. 

“Having someone in it, who specialises in what you do, or want to do, is so important. At Baya Financial, we are active on social media, so give us a follow on Facebook, Instagram, or LinkedIn for our market and product updates!”

Raising & Utilising Private Finance

Raising private finance is another important strategy for HMO investors and is pivotal to the growth of any property business. We’re almost always going to run into challenges with not having enough cash, and this may become more of an issue moving forward with higher interest rates and the ongoing cost-of-living crisis. 

There are different ways to use private finance, including joint ventures and fixed-rate lending. Make sure you understand the varying kinds of structure and finance you can use. You may find utilising different types of private finance is the best way to really scale your HMO business over the long term.

Start by setting a fundraising objective for 2023 and work on building your authority, credibility, and branding. There are also compliance pieces you need to be aware of before getting started, including regulations set out by the Financial Conduct Authority.

Understanding Recycling Capital

Effectively recycling cash allows you to regenerate cash, which can also support private finance deal structuring so you can pay back investors. And if you truly master this, the ability to scale your HMO portfolio will be infinite!

There are three main considerations when it comes to recycling capital, including finding projects where you can add value, getting a commercial valuation, and earning capital appreciation over time (but don’t rely solely on property values going up over time!).

Knowing how to effectively add value to your HMO projects can allow you to really get the most out of your properties and refurbishments. And this will likely be especially crucial moving forward.

You need to be aware of the best ways to do this, such as through converting a loft or garage, extending the property, dealing with any structural issues, and undertaking a quality refurbishment. But also keep in mind that every area has a limitation on what the upper value can be.

If you can master funding your HMO portfolio, financing your deals won’t be an issue throughout 2023 and beyond. Working on this area of your business can help you build a solid foundation to be able to act on opportunities that come up and secure the right properties. And it will accelerate your HMO business success exponentially!

For more resources, lessons, and advice on funding your HMO portfolio and business, become a member of The HMO Roadmap today! And if you’d like to chat with our mortgage broker, get in touch with Ellie.

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!