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First HMO - Traps to Avoid

Deciding to set up an HMO is a big commitment and there is a lot one needs to think about and get right. For the purpose of this newsletter, I am assuming that you know a little bit about what an HMO is and that you are in the process of seriously considering this model, or perhaps you have even started to look for properties. Here are just a handful of things you need to think about at this stage:

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Don’t over-think regulations

One of the things that I come across regularly is people clogging their heads up with council regulations. What are the rules for this, what are the rules for that, what fire doors do I need, what smoke alarms do I need etc.

 I am in no way questioning the importance of council regulations, in particularly fire regulations but setting up an HMO is about setting us a business. The primary focus must be on finding a viable property that can make you some money, its not about immersing your head in the ins and outs of all the regulations. They are not as complicated as they seem – worry about them later.

Don’t get stuck looking for bargain “BMV” properties

Properties with the right footprint and in the right area to convert to an HMO are hard to find. If you are also looking for “BMV” (Below Market Value) you are making a challenging task even more challenging, and even if you were to find something, there is invariably an “opportunity cost” of waiting far longer to obtain your first HMO which may well outweigh the BMV element of your purchase. I am not saying there are no “BMV” properties that are suitable for HMO conversion out there, but they are very rare.

An HMO is an investment for long-term income. So, your focus has to be the right location and footprint to provide long-term income, not short-term gain. Regardless of what you might read on social media or hear on a training course, by the time you have done all the conversion work and kitted out your HMO, there is not likely to be any uplift in value over-and-above the additional investment  you have made in the house.

Think long term!

Be realistic with your figures

I engage with individuals who have often come off a course and they have been set unrealistic expectations. This often leads to assessing a property and looking at ways of squeezing in as many bedrooms as possible. This approach may have worked 5 years ago, but not now that there is so much more competition.  Your focus must primarily be on creating a house that people want to live in. Be willing to accept a slightly lower return to achieve this. The return is your rooms will be easier to fill, your tenants will stay longer and you will have less voids.  So, your paper return might be less, but long term it will be sustainable.

Location, location, location

Think about this before anything else. By “location” I don’t mean the smartest part of town, but I do mean areas that are on good transport links with parking available where your tenants will feel safe. I would rather spend 20% more on a house if my numbers still work so as not to compromise on location. Again, it will benefit you long term.

 

Take a long-term view!