How To Get The HMO Basics Right - The HMO RoadmapThe HMO Roadmap

As a beginner investor, it’s key to get the HMO basics right, and there’s a lot involved with this!

To be successful in HMO investment from the beginning, you need to find, fund, refurbish and manage your properties effectively. So, here are eight of my top tips to help you do this efficiently, so you can build a strong foundation for your HMO portfolio!

1. Become an expert in the local and national market.

For starters, you need to start learning as much as you can about the HMO market and what’s happening in the location you want to invest in. As location helps determine the success of a HMO property, it’s crucial to understand the ins and outs of the market.

This includes areas like property specifications and room prices. So, what’s happening with supply and demand? What is the competition doing? What is the rental strategy profitability and long-term capital gains prospects? To help you secure the top rents and create the best rooms and properties, look at this sort of information in detail.

SpareRoom can be a useful place to start – it has a substantial amount of data that can help you understand the supply and demand and competition in a certain location. To effectively get the HMO basics right, you’ll need to understand the local HMO market in detail and know how to attract the right tenants to your properties.

You will also need to be aware of where your product will sit in the market. It’s too risky to make assumptions or go off what someone has told you. So, ensure you figure this out for yourself and do your own research and due diligence!

2. Understand how to effectively analyse deals.

With HMO investment, it’s not uncommon to face problems that will cost you more than you originally expected – even at the best of times! But this is an especially difficult challenge for HMO investors amidst a higher cost of living. Anything can happen, so it’s crucial that we’re prepared in case costs go up further.

Because of this, you should stress test all of your HMO deals thoroughly before considering purchasing anything or deciding what offer to put in. This is even more important now than it was a decade ago. And it’s super easy to get caught out if you don’t effectively analyse and stress test your deals.

There are numerous areas you need to stress to help you see what a deal could look like under ANY circumstances. Looking at the bigger picture can also allow you to make more informed decisions about every possibility and scenario.

While we of course can’t predict the future, there are ways we can prepare for whatever comes our way! And this includes stress testing a few key points in every single HMO deal appraisal we do, including:

Purchase price
Interest rate
Refurbishment costs
Down valuations
Mortgage loan to value
Occupancy rates
Rental achievement
Utility bills
Maintenance costs
Timeframes

You then need to throw all of this information in a spreadsheet. Or you can use the deal stacker inside The HMO Roadmap and easily play around with them. Once you stress these 10 points, I guarantee you’ll start to feel way more confident about your HMO deals – and especially so in the current market!

3. Get yourself in a super lendable position.

To ensure you’re able to fund your HMO projects, focus on getting yourself into a super lendable position. This is especially important for beginner HMO investors and will help you maximise the interest rate and mortgage deals you can secure, which is particularly crucial as we’re in a period of higher interest rates.

For starters, having a great credit score and strong deal prospects and evaluations can make the bank feel comfortable and confident lending to you. And when this happens, they’re more likely to lend to you for cheaper and longer.

You also need to understand what’s happening in the mortgage market. This is key as these products can ultimately help you scale your HMO business. I would say they’re essential to any investor who wants to scale a property portfolio up, so make sure you keep up to date with what’s going on in the mortgage sector.

Consider working with a mortgage broker as they can help advise you on the best deals for your personal and financial circumstances. Brokers can also help you understand varying lending criteria and help you navigate entire property purchases, so you can benefit from their knowledge and experience throughout the entire buying process.

HMO mortgages are considered to be a specialist mortgage, so applying for one can be more complicated. While lending requirements and assessment criteria can vary among lenders, make sure you’re fully aware of the most common considerations and that you find ways to legitimately strengthen your mortgage application and rental income statements.

If you can also master the other main areas of HMO funding, including raising private finance and recycling capital, you can gain access to additional avenues to access the money that you need for HMO investment. This will allow you to get better deals from lenders and be able to proceed much more quickly!

4. Create an investor deck and deal packs.

There’s naturally only so much finance you’ll be able to have on hand and get from the bank, so you’ll likely have to raise private finance if you want to continue building your HMO business. And you may need to look at ways to invest in HMOs with little to no capital, which includes finding the right investors, adding value and recycling capital.

In order to be able to effectively do this, you need to start thinking about investor decks and what you could present to potential investors. This can’t happen overnight because you have to build and nurture relationships with investors first. So, it’s good to get started thinking about this and prioritising it now.

Even if you don’t feel you need finance at this moment in time, it’s still a good idea to start working on this. You never know when you’ll need it or how quickly you’ll need it, especially with how capital-intensive HMO investment is!

Additionally, as you never know when you might meet someone, you need to be prepared with info about who you are and what your business is. You’ll likely need a website and investor deck as a minimum.

Within The HMO Roadmap, there is an entire course section about raising private finance, which will help you establish fundraising objectives, create investor decks and deal packs and learn how to differentiate yourself through credibility, authority and brand.

5. Use Pinterest boards to plan refurbishments.

When buying properties for HMO investment, you’ll likely undertake a refurbishment, which can help you add value, push rents up and make the property suitable for HMO accommodation.

You don’t need to be a designer to necessarily do this, and there are ways to refurbish HMOs on a budget, such as spraying the kitchen, incorporating feature walls and panelling and investing in new flooring.

A good place to start planning your refurb is Pinterest, which is full of unique ideas for designing properties. Utilise the platform to get some inspiration and start planning a cohesive interior design concept by creating a mood board for the property.

Planning a renovation can be overwhelming, especially if you’re a beginner investor. But once you choose a concept, look for inspirational images. This will help you move forward and allow you to understand the palette, materials, furniture, finishes, art and accessories you want to use!

6. Create standard operating procedures and a checklist.

Before you start letting out rooms and managing HMOs, it can be helpful to have systems and processes written down in detail to create structure within your HMO business. This helps provide accountability and ensures standards are being maintained.

You can look at other facets of your business too and work on implementing structure into it. So, start by writing down a list of problems you’re having, and then analyse these issues and prioritise tasks. From there, you can start writing down and creating standard operating procedures.

To get a HMO up and running, it can also be helpful to create a checklist to help ensure you don’t miss meeting any of the standards you need to meet and documentation you need to provide.

While the process of ticking boxes and gathering documentation isn’t enjoyable or easy for most people, you need to accept it as it’s part of your job as a HMO landlord and do it, while also making sure you don’t leave anything out.

Creating a checklist for this can help make sure you pull everything required together. This can also help you build the necessary systems and processes to ensure you effectively keep up with all of your legal obligations moving forward!

7. Have a team of experts and professionals on your team.

A team of experts can be particularly helpful to give you the confidence you need in different parts of HMO investment, from planning consultants and architects to managing agents and builders.

With so many uncertainties still ahead and as certain parts of HMO investment could become more challenging, particularly with additional legislation that could come forward in the coming months and years, certain professionals can really help ensure your HMOs remain successful and sustainable!

For example, HMO management can be challenging and is considered one of the most overwhelming areas of this type of investment. And self-managing is simply not for everyone, especially if one of the reasons you invested in property was to have more time and freedom of choice.

Because of this, it may be beneficial to work with an experienced managing agent, who can stay on top of maintenance, repairs and tenant management within your HMOs. But you need to find the right person.

8. Keep improving your knowledge and staying on top of changes.

You need to keep learning even after you get the HMO basics setup. It’s important to stay informed and keep up to date with what’s actually going on in the industry – not just the news headlines!

As HMO investors, you should be constantly trying to find ways to improve and expand your knowledge. There is so much to know and learn in the HMO industry, and things can also move and change quickly, making it even more difficult! So, it’s helpful to invest in property education to help you with this.

There are a wide range of products and services available in property education, from free resources and e-learning platforms to mentorships, events and masterminds. It may take some time to help you find the best way for you to learn, and it may be beneficial to invest in different forms over time.

But make sure you do the right homework and research on the people, businesses and programmes you’re wanting to work with in the property education space.

Resources to Help You with the HMO Basics

To help you really nail the HMO basics and to streamline the learning process, become a member of The HMO Roadmap, where you can access lessons, resources and case studies to help you start, scale and systemise your HMO business!

If you’d like access to templates like my investor deck, business plan and cash flow forecast spreadsheet, sign up for the premium subscription. As a free resource, The HMO Podcast covers a range of topics from tips and tricks that can save you time and money, to the best practice advice, the technical ‘know-how’ and inspirational stories of success and failure.

And if you have any questions about investing in HMOs, join us over in our free Facebook Group The HMO Community. There are more than 9,000 members and lots of fantastic conversations are happening over there with inspiration, problem-solving, guidance and support from fellow HMO investors!

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!