Photo by Concrete Property Investments
Over the past few years, there have been a number of challenges for HMO investors, from the COVID-19 pandemic to all the political and economic uncertainty. It’s important that we learn from what’s happened in recent years and adapt to ensure our HMO businesses remain successful moving forward.
Let’s talk about what happened over the past year and how HMO investors can learn from some of these challenges. We’ll also include some of our predictions for the rest of 2024 and tips to help you adapt your HMO business!
So, What Happened in 2023?
Last year the economy was a bit dicey with a lot of instability! UK inflation was at high levels throughout the ongoing cost-of-living crisis. In 2023, the CPI annual inflation rate was at its peak in February at 10.4%. This dropped to 4.0% in December.
Gross domestic product (GDP) has also been flat with the UK’s economy even falling into a recession in the second half of 2023. In the three months to December, GDP contracted by 0.3%, a deeper contraction than most economists’ predicted. This was after GDP shrunk by 0.1% between July and September last year.
This created difficult conditions in the property market, including high interest rates. The Bank of England (BoE) increased the base rate 14 consecutive times following the pandemic. The rate ended 2023 at 5.25%, having been held at that level since August.
With all of this happening, the average UK house price dipped by 1.4% in the 12 months to December 2023, according to the ONS’s UK House Price Index. This naturally would have impacted HMO investors and their decision making.
What’s Expected for the Rest of 2024?
While I don’t have a crystal ball, it’s important to think about what could happen over the rest of 2024 and beyond. And it’s important that we’re prepared for whatever comes our way!
Economic conditions feel much better at the moment with more stability. The base rate has been held at 5.25% for four consecutive base rate setting meetings with the next one on Thursday 21 March.
The CPI annual inflation rate was at 4.0% in the 12 months to January 2024, but the Bank of England’s inflation target is 2%. The BoE has said that inflation could briefly drop to 2%; however, it’s expected to rise again. And the Bank has said it’ll keep interest rates high for long enough to get inflation back to the 2% target.
Many are predicting this last bit of inflation could be the hardest to bring down, especially as certain prices and bills remain high. While energy prices are coming down, it’s still higher than previously, and food prices will likely remain high for some time.
Overall, the mortgage market is looking more positive, and we won’t likely see any base rate rises this year. But interest rates will likely stay high for a prolonged period of time with an aim to bring down inflation.
If you’re coming up for a refinance, particularly if you’re coming off a five-year deal from a low interest rate, this will likely be a big jump and something you need to be prepared for! It’s hard to know what this will mean for property values. Prices have fallen some, but there aren’t as many motivated buyers as many are likely hoping interest rates will come down.
4 Tips for Adapting Your HMO Business
While there are still certain ongoing economic challenges, I believe there are a lot of reasons to be excited about the rest of this year, and that there will be good opportunities to buy and invest.
However, it’s also important to be sensible and make sure you’re prepared to take advantage of better buying conditions, in addition to navigating the ongoing challenges. Here are some tips to help you do that and adapt your HMO business effectively!
1. Consider auctions for good buying opportunities.
Recently, there have been some properties going for realistic prices at auctions, so if you’re looking to buy your next investment, it may be worth considering going down this route. This will be more challenging for beginner HMO investors, so make sure you’re prepared before going to your first property auction!
2. Do your research and due diligence on prices and costs.
Be careful about your purchase prices and make sure you don’t become overleveraged. Research up-to-date data and figures, and you also need to understand your costs, especially as so many prices have increased in recent years. And then from there, focus on building the right margins and have effective contingencies in place.
3. Understand the importance of having reserve funds.
Not having cash reserves is how so many businesses fail! So, it’s a good idea to have at least three months of cash that you could burn through if you needed to. And looking ahead, I really like to have up to 12 months of cash in the bank wherever possible.
4. Work on cash flow management and cost reduction.
It’s crucial to keep managing and projecting out your cash flow as you need to understand what’s going on in your business at all times! You should also know exactly what all of your costs are, understand how to mitigate anything coming from left field and find where you can cut or reduce overheads.
If you want to take this a step further and really scale and systemise your HMO business this year, sign up for The HMO Roadmap today!
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!