Photo by Jolly Property

This month, I’m focusing on how to maximise your commercial valuation. I’ve discussed previously when you can attain a commercial valuation (please check out the podcast episode here if you haven’t already).

I want to delve into what you can do with your property to maximise its end value and secure as much as possible during the refinance process.

First, a couple of important notes: You cannot obtain an HMO mortgage for a property that isn’t already an HMO. So, if a broker is telling you otherwise, they are mistaken. You’ll need to use bridging financing for the purchase and refinance once you’ve completed the refurbishment and conversion.

Secondly, choosing the right lender is crucial to achieving a commercial valuation. Only three lenders will provide an accurate commercial figure, especially for small HMOs.

So, what can you do to maximise your property’s end value and generate the most profit?

1. Purchase a property that isn’t currently ‘mortgageable.’

What I mean is to consider properties that require extensive renovations, essentially starting from scratch. Paying for a new kitchen or bathrooms that are already in rentable condition is a waste of money if you plan to strip them out and start anew. Another advantage of these properties is that you won’t face much competition from those looking for a family home. Most people looking for their family residence prefer move-in ready options, especially in times of uncertainty regarding interest rates and energy prices. Remember, negotiating well and avoiding emotional buying will benefit your return on investment.

 

2. Create something that is difficult for others to replicate.

Valuers, when determining commercial valuation eligibility, consider how easy it is for someone else to replicate your property. The easier it is, the less likely your property will sell at a premium. What does this look like?

• Buying in an Article 4 area or converting to a large HMO can be a risk but may result in a better increase in value. Researching the local rules can help mitigate this risk.
• Conducting a refurbishment that includes adding space to the property, whether through an extension or loft conversion. Adding square footage adds value that isn’t easily replicated.
• Adding en-suites to every room. This not only sets your property apart but also enhances its appeal as an HMO.

 

3. Don’t overspend on your refurbishment.

Keep in mind that there’s a ceiling price based on market yield when determining commercial value. So, be cautious when considering design and finishing touches. While you may want to add features for other reasons, such as reducing long-term maintenance, increasing rent, or minimising vacancies, they may not contribute to the property’s value.

 

4. Spend in the right places.

To create a ‘new’ property, consider a back-to-brick conversion, a new heating system, and updated kitchens and bathrooms. This results in a bespoke product that, in theory, can command a premium over other properties. It’s a ‘turn-key’ investment with minimal short-term maintenance and the potential to attract high-paying tenants.

This approach aligns with making it difficult for others to replicate, emphasising the importance of doing the necessary work to truly make it an HMO.

As always, feel free to request a callback on the HMO Roadmap here if you have any questions or would like to discuss a specific deal.

 

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.