Photo by Property Touch

It doesn’t feel like long since our last update, and with less than three months until everything shuts down for Christmas (I can’t believe I’m mentioning that already!), it’s time to get those offers in if you want to complete before the holiday rush! In this blog, I want to discuss a few recent HMO conversion case studies, focusing on the total costs and the returns our clients have achieved. We’ve seen a mix of valuations lately—some lower than expected, which could signal a cooling market, and others that exceeded client estimates.

It’s tricky to gauge whether we’re seeing a ‘down valuation’ since we don’t always know the clients’ expectations; some might use the highest comparable sales, while others take a more cautious approach. However, I’ve noticed certain areas aren’t hitting the figures we saw just a few months ago. That said, there are still excellent deals to be found. 

Here are some examples where clients have truly succeeded:

Somerset Case Study

One client in Somerset purchased a property for £192,500 at the start of the year. It was a cash purchase that required a full refurbishment costing around £180,000. He also secured planning permission for a 7-bedroom property. We’ve just received a valuation of £625,000, allowing the client to pull out 75% of that value, so he’s ready to invest in his next project.

Northwest HMO Flat

Another client acquired a 4-bedroom HMO flat above a commercial property in the northwest. After a lengthy negotiation with the freeholder for the adjacent property, they hoped this purchase would be smoother. The purchase price was £70,000, as the vendor struggled to sell due to freeholder issues. It needed light refurbishment at a cost of about £40,000, remained tenanted throughout, and has now been valued at £250,000 upon completion. Once again, the client has recouped all their investment and is ready for their next purchase.

Vacant Commercial Property

Lastly, we have a client who bought a very run-down, vacant commercial property for £195,000. She’s applied for planning permission to convert it into an 8-bedroom HMO. We’re currently refinancing to a bridge loan to release cash for the refurbishment and conversion, with a Gross Development Value (GDV) of £525,000 and projected works costing £200,000.

From these examples, it’s clear that our clients have navigated significant challenges to add value to their properties. This value addition doesn’t always come from the physical work; sometimes, planning or legal hurdles can be even more daunting. You can’t create value from nothing, despite what some mentors might suggest! That said, there are fantastic opportunities out there.

Here are my top tips for choosing your next property:

1. Look for Low Competition: Most transactions involve residential home movers seeking move-in-ready properties. Find something outside this category to secure a better deal.

2. Focus on Unique Opportunities: This could involve extensive refurbishments, but keep in mind that this is becoming less of a draw for valuers. Adding space through loft conversions or extensions is beneficial, as are properties in Article 4 areas or those with planning issues (if you’re willing to take on the risk!).

3. Be Realistic About Costs: Many clients overestimate purchase prices or refurbishment costs, assuming the GDV can simply be adjusted upwards. Stay grounded in reality and avoid making decisions based on overly optimistic scenarios.

As always, if you would like to discuss your next deal, you can book in a call with me through The HMO Roadmap 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.