Building a HMO portfolio can be challenging, and there can be a lot to think about when starting and scaling a HMO business. It can be particularly overwhelming when it comes to trying to find the right property.
Because of these challenges, I’ve created my ‘F System’, a five-stage system to help me scale my HMO business and make sure it’s sustainable. And the first ‘F’ in the system is Find.
Find
When it comes to finding deals, the first and most important thing to understand is that it all depends on YOU! You have to understand exactly what you want to build your portfolio around. It’s important to think about what the right kind of HMO is for you, your business, and how that aligns with your short and long-term objectives.
Start by thinking about what you want to achieve. Pinpoint your long-term objectives to ensure that you will be investing in the right type of HMO (students, professionals, social etc). Your investment should always fit and work towards your end goal, and this can also help ensure that you won’t be derailed along the way.
Once you’ve decided on what you want to achieve, it’ll be easier to find the right properties to invest in. This first stage of The HMO Roadmap will help you compartmentalise the steps you need to take to make sure you’re looking at the right kinds of HMOs and how to focus on finding them.
Once we know what we’re actually looking for, we can start looking at the different types of HMOs, the different locations and we can consider the different property sizes.
The Different Types of HMO
It’s important to understand the different types of HMOs. This is ultimately determined by the type of tenant you eventually let your property to. Some of the principles of finding and managing student, professional and low-income HMOs are quite similar, but in practice, they’re all entirely different beasts.
For starters, explore the differences between the types of tenants. And most importantly, we need to understand why the differences mean we have to cater very differently for our entire HMO investment strategy.
As there are differing pros and cons for each kind of HMO, make sure you really understand everything that is involved in investing in your chosen HMO type.
Choosing An Investment Location
When it comes to property, location is key, but this is especially the case with HMOs. It determines everything from supply and demand and how desirable the property will be to rental strategy profitability and long-term capital growth.
In order to build a sustainable HMO portfolio, you need to get the right location. This will help attract the right tenants. When targeting an investment location, try to learn absolutely everything you can about the area. Consider the pros and the cons and the reasons why it might be difficult or easy to invest in a particular type of HMO in that area. Think about the amenities on offer, the population size, the competition, transport links and local regeneration or infrastructure programmes that could be an opportunity for the future.
Why Size Matters
There’s also the size of the HMO to consider. The size of the property that you decide to invest in and the number of bedrooms will impact your entire strategy, including from a cost and profitability point of view.
Additionally, the size of the HMO will impact your ability to raise finance and acquire properties. It will also directly affect whether or not you need a license or planning permission. Because of this, it’s really important that every time you think about acquiring a property, you consider if the size fits with your objective and what you’re trying to achieve.
Assessing HMO Properties
It can be especially challenging to find and assess HMO deals in a hot or uncertain market, like it has been in the past year. However, no matter what the market is doing, it’s important to evaluate what a deal means for you.
YOU need to be able to appraise property deals. If you don’t do this effectively, you really could be building a business on sketchy foundations. Always ask yourself, does this property and location fit with my strategy and serve my long-term objective, do the numbers make it attractive enough, and have I considered all of the things that could potentially go wrong?
It’s no good trying to acquire any type of property by any means. That’s really not the foundation of a successful and sustainable portfolio. Make sure you have a narrow focus on exactly what you’re looking for.
For more training on the five-step ‘F’ system to help you scale and systemise your HMO portfolio, check out our 60-lesson course (plus much more) at The HMO Roadmap.
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!