Photo by Parable Property
There are some key areas that are helpful to be focused on at the start of your HMO investment journey. As a new investor, it’s important to ensure you’re on the right track to begin.
This can save you a lot of time and money in the long run, so let’s cover some of the main areas you need to consider and address and how to start putting a plan of action in place!
If you are thinking about starting a HMO business, you may be asking yourself how to actually get going. It’s easy to be overwhelmed if you’re new to the space, but don’t worry! This step-by-step guide will help you figure out how to start a HMO business from scratch and what you need to think about.
If you’re wanting to invest in your first HMO and build a successful and sustainable business, here are the nine essential steps to help you put a plan in place!
1. Have a clear strategy, vision & goals.
Before you get started building a HMO business, you first need a clear vision of what you’re trying to achieve. This is where having a strategy and setting goals really comes into play because these will guide and influence your decisions as you go about building your HMO portfolio.
You can’t just get started without a strategy and vision… Having these things ensures you know what you’re doing and where you’re heading, in addition to helping keep you on track and make sure that you don’t get distracted!
Spend some time on this and think about the short, medium and long term and what strategy will work best for you, your circumstances and aspirations. This can then help you prioritise what you need to do to accomplish your goals and start mapping out your business plan. Write these all down on paper as you should frequently revert back to them.
You’ll have to make some sacrifices along the way as your business will ultimately be the victim if you don’t commit the time that it needs, so make sure that you’re prepared to do the work to see your strategy, vision and goals come to fruition!
2. Set up your business.
If you want your HMO business to get started on the right foundations, then you’ll need to think about properly setting your business up. This involves a number of activities including:
- Planning how you’ll keep track of regulations and compliance
- Figuring out how you’ll finance your business and raise capital
- Deciding on a brand that visually represents your mission
- Implementing structure, including systems and processes
These are big parts of starting any property business! Once you’ve started thinking about these four key areas, you can prioritise them and put time aside to build upon them. Building a business is an evolutionary process, so these are areas you should keep coming back to as well.
You may need to start building a plan to help you set up your business and make sure you don’t miss any important steps. Don’t get overwhelmed by this though! You don’t need to be mapping out every task at this point, but start planning the first few steps in setting up your HMO business.
This will help you put these pieces into action. And having these areas mapped out and written down will allow you to take the leap and start your HMO portfolio with actionable steps.
3. Start sourcing, appraising & acquiring HMOs.
Once you know what type of HMO, property size and location you’re looking for and what matches your strategy and goals, you can get started finding HMOs. The ability to source and acquire good HMO deals is crucial to how you’re able to start and build your business.
Learn how to find motivated sellers, build relationships with agents and start pipelining deals, and you need to be able to accurately appraise deals as well! This final step is especially important, but unfortunately, a lot of people have a hard time with this.
You have to really understand the data you’re putting into your spreadsheet and be as realistic as possible. Work on understanding gross and net yields, return on capital, down valuations, and what the appraisal will look like, in addition to what your costs will likely be.
4. Plan and undertake refurbishments.
Another important area is understanding everything that’s involved in planning and undertaking a refurbishment, and this includes how to transform a property, set budgets, put contingencies in place, estimate timeframes and mitigate risks.
This is all key in making sure that the delivery of your refurbishments is as close to where you want and need it to be. Always proceed with caution in the planning stages, but don’t forget to build some risks in to help prepare you for mistakes or anything that can crop up!
After spending time trying to reduce the chances of things going wrong by planning your refurbishments, you’ll then need to deliver them. If you’re looking to build up a HMO portfolio, you’ll need to keep pushing refurbs along. Make sure that timelines are achieved and targets are hit by having systems in place.
And it’s not just about managing people and projects, because you also have to understand the financial aspect to make sure you’re not overspending. Once a refurbishment project starts, you need to give your full attention to it. But there are certain professionals you can hire to help you with this, including architects or project managers.
5. Perfect your HMO and tenant management strategy.
Managing tenants and HMOs can be one of the most challenging areas of HMO investment. It takes a lot of effort and time and covers activities such as advertising rooms, screening tenants, processing deposits and tenancies, undertaking inventories and inspections, collecting rent and managing maintenance repairs and maintenance.
On top of that, you need to always keep up with compliance, while communicating with tenants effectively. As with any type of relationship in your business or life, good communication is absolutely key to managing tenants. Being professional and proactive can also further improve your relationship with tenants.
Additionally, expectations need to be clear right from the get-go, and you can achieve this by communicating well with your tenants from the very first contact. It’s also important for you to respond to any concerns they have in a timely manner so you can put their worries to rest.
Thinking about having the right document in place like a ‘Welcome Pack’ you can give to any new tenants will help you to set out all of the important information your tenant needs to know. You should include information like how a tenant can hand their notice in or report maintenance issues and what the cleaning policy is.
So, think about how to have the best HMO management strategy possible. This can usually be done by focusing on improving tenant retention. And even if you decide self managing your HMOs isn’t right for you, make sure you have the right agent doing this. You and your HMOs could get left behind if a good service isn’t provided to your tenants!
6. Invest in financial planning.
This isn’t the most glamorous side of starting and running a HMO business, but it’s an essential foundation to get right. The purpose of financial planning is to monitor and measure the financial elements of your business, identify potential opportunities and problems, ensure you can grow and build a stable business and manage the financial risks.
You don’t need to be an accountant or financial expert to get your head around this, but you do need to have a good grasp of numbers to budget and keep track of your expenses and cash flow. You’ll also need to forecast your business and identify any issues that are keeping you from your financial targets.
There’s a lot to consider here, but work on organising and preparing your finances well to make things easier. The cleaner your finances are, the easier it will be to build a sustainable HMO property business and the better you’ll be able to plan for the future!
7. Raise private finance and recycle capital.
There’s only so much finance you’ll be able to have on hand and get from the bank, so sometimes you’ll have to raise private finance if you want to continue building your HMO property business up. And you may need to look at ways you can 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 do this, you need to start thinking about investor decks and things you can present to potential investors. Keep in mind that this isn’t something that can happen overnight because you first have to build and nurture relationships with investors. So, you need to start thinking about this and prioritising it.
Even if you feel you don’t need finance right now, it’s still a good idea to start working on this because you never know when you’ll need it or how quickly you’ll need it, especially with how capital-intensive HMO investment is!
8. Grow your business and hire staff.
Hiring staff you can rely on is absolutely crucial to running and growing your HMO business. The right people could help with anything from carrying out viewings, inspections or inventory to handling a whole range of administrative work.
But of course, you can’t just rely on them to do the job as soon as you hire them! You need to take the time to train and nurture them so they are best placed to help you achieve your business goals.
It’ll be helpful to have processes and standard operating procedures in place at this stage as this can help establish routine and ensure tasks are being carried out to the right standard. It’s also important to have clearly defined roles and responsibilities for any staff member, and you have to build the right culture too.
This can help you build a successful HMO business and take it to that next level. You’ll be able to free up more of your time to focus on higher level work as you won’t be able to keep doing everything yourself if you want to grow. Keep in mind that while hiring staff won’t necessarily immediately generate you more income, it’ll give you the capacity to start scaling up.
9. Get the support you need to start your HMO business.
When getting started building a HMO business, it’s essential to get support in the industry and make sure you have the right foundations in place to set you up for success. This can seem quite daunting on your own, but there are a lot of resources out there to help you. And it’s also helpful to surround yourself with the right people too!
A great place to help you start, scale and systemise your HMO business is by signing up for The HMO Roadmap. We offer in-depth training lessons, case studies, spreadsheets, worksheets and templates to help you every step of the way! We also offer masterminds, mentorships and workshops to allow you to really level up your HMO investments.
And if you have any questions about starting and building a HMO business, join us over in The HMO Community, our free Facebook Group. We have more than 9,000 members who can help provide advice and insight on investing in HMOs, so come over and ask questions you have!
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!