Mike Frisby, is a successful property investor and developer, who also runs the Regent’s Park chapter of the Property Investors Network.
He has put together his top tips for investing in houses of multiple occupancy (HMO), which we’re delighted to share with you. Mike has further tips that he will be sharing with you in the next few months.
Introduction to HMOs
I have invested in HMOs for many years, but really started focusing on this strategy with a vengeance at the beginning of 2015, as I came to understand how to unlock the keys to multiple HMOs with commercial finance.
Following the turbulent storms the property market has weathered in recent years, I started to see an increasing demand for high-end room lets in the Greater Portsmouth area. The demand was — and still is — significant and professional room rates are at an all-time high. Also, as many of you will know, a bulk of my portfolio was geared towards social housing, but with the rates stagnating I decided that I needed to look at other avenues (no pun intended) to further boost cashflow in my business.
Having worked very closely with my broker, I quickly discovered that I could convert houses into HMOs with a little money left in the deal after re-financing. Portsmouth is also an area which is governed by Article 4, which means that you have to get planning permission to change the use of the property from C3 (residential) to C4 (HMO).
As I know the area really well I have been able to purchase properties and look at planning gain (i.e. getting properties reclassified from C3 to the more valuable C4 usage), which substantially increases the values of the property (more about this later).
One — Sourcing the right property
It seems very obvious, but make sure you buy in an area where there is rental demand and ensure there are good levels of employment and transport links. I have learnt from my mistakes. I took a punt on a few houses when I first started investing in HMOs that aren’t in a typical room letting area and although they do get filled it’s never that quick and cashflow is the name of the game (rooms sitting empty for months on end really hurts). Do your research and look at the demands of the rental market in the area that you’re considering investing in.
Talk to letting agents and check out local websites — there is a wealth of information waiting to be tapped into. When looking for properties source through agents, I cannot stress enough the benefit of having a good agent on your side. We have got to the stage now where some of the agents we work with don’t even bother doing viewings with us anymore, they just give us the keys to the property (often before it goes to market) so that we can go and assess the potential. Another avenue is to source directly through HMO letters, don’t forget the power of leaflet drops. Check the HMO register: there may be retiring landlords looking to sell off their portfolio.
I was able to pick up a 22 bed HMO from a landlord who could no longer look after the running of such a large investment. Join an HMO Facebook group, which is good for sourcing deals and the forums are fantastic for advice. Once you’ve chosen an area, make sure you download the HMO regulations from the local authority’s website because every area has very different criteria.
When assessing the property, try and see what can be done within permitted development and how many en-suites you can achieve at each potential property. My method for higher rental figures and to stimulate demand is definitely installing en-suite facilities.
This is why most of my latest HMO’s will have an en-suite in almost every room. People will pay more for not having to share bathroom facilities — fact! But, please do bear in mind that you will need to satisfy building regulations when installing en-suites, so make sure you take that into account. Where necessary employ the services of a planning consultant or building surveyor whose services will be invaluable, especially when starting out.
Two — Renting your HMO
You only have a small window to make your property stand out from the crowd. We find that using professional photographs will enhance adverts and really help to sell it before you even start viewings — this is a proven formula that we follow and it works.
Decide on your target market. Do you want a group of students or professional tenants? If it’s students, rent out the house as a whole, to a group on one tenancy, with a lead tenant rather than individually. This way if one tenant doesn’t pay the rent, the others are jointly liable to cover the rent. But, never mix students and professionals, as they lead two different lifestyles and it can cause conflict in the house.
Three — Viewings
Book your viewings strategically and ensure you show them all the available rooms. Sometimes prospective tenants will tell you they have one budget, but then miraculously find more money when they see a bigger or better room. That said, if you have a smaller room in your HMO that you’re struggling to rent, but also have a slightly bigger/nicer room in the same house, don’t show them the larger room if they like the smaller room.
You do need to make a good impression as viewers have friends who will spread the word! As for rental values, always try to achieve higher values, but be realistic. Have a look on the market and see what similar rooms are going for and how your development compares.
Tenants will pay for quality, so if your property it finished to a higher standard, you can be confident you will achieve a higher rate. As with so many things in life, first impressions count, so take time to dress the property and present it in the best possible light. Don’t forget the finishing touches: scatter cushions, heating on (if you’re showing the property when it’s cold) and even set the table for dinner.
If there’s a coffee maker have it on — and offer them a drink once they have had a good look around. If it a couple that are looking at the property it is important to let them have some time to view the room or rooms on their own, so make a polite excuse to leave them without making it too obvious.
Better that they make a decision whilst they’re in your property, rather than the ‘we’ll call you’ because they didn’t have any time alone to discuss things. That’s all for now, but in my next article I will be looking in more detail about the following elements: how you can finance the purchase of an HMO; getting your HMO ready for letting and the professional services you will need to employ; managing your asset and how to acquire additional properties.
And, as this is being featured on the website of a property lawyer, you do need expert legal advice and I can personally vouch for the high quality service that Tony has provided over the last few years.
For more information about Mike Frisby, visit his website HERE