Estate Agents (Part 5)
Lately, we’ve been thinking about how we are going to find our deals and this week, I want to give some thought to HMOs. At a very simplistic level, your HMO is likely to be very similar (physically, at least) to a buy to let. As such, you’re probably going to find your HMO as you would any other property, i.e. through an estate agent.
However, let’s think about HMO investing at a more sophisticated level because an HMO could actually be created out of something which isn’t a residential dwelling. Many seasoned investors convert other types of property such as old office buildings, nursing homes or even pubs into HMOs. So, your HMO doesn’t necessarily have to be a house. But, if you’re just starting out, then you will probably be looking for a basic house of a particular size and specification that you can convert to make it work.
You might question why I’m talking about converting and not just going out and sourcing HMOs, which incidentally, is a valid route if you don’t want to investigate all the regulations or don’t have the time to do the work or project manage a power team. You could go out and find yourself a property that has already been converted into an HMO (or even purpose-built as an HMO) – it’s quite rare, but there are one or two out there. The reality is though, that if you want to make a decent profit from your property, then you WILL want to do the conversion.
A lot of the profit in HMOs is actually made on the development – and, even if it’s only profit “on paper”, you can greatly increase the equity and therefore your wealth by doing the work.
Where you find properties to convert will depend on the type of properties you are looking for. When I started to look for my first property to convert into an HMO, I had set my sights on a 3-bedroom terraced house or 3-bedroom semi-detached house. I knew exactly what I was looking for and had a very particular configuration in mind.
In my case, I was looking to be able to configure the accommodation so that I could have two bedrooms on the ground floor, three bedrooms upstairs, a big kitchen and a hallway with a side passage linking all the rooms together. I knew if I could find a property which met that description then I’d be able to convert the property into a 5-bedroom HMO. And, if it was big enough, I wanted all bedrooms to be ‘en suite’.
But in the particular town where I was looking, I couldn’t seem to find any properties which matched this description. This was slightly strange because in a different town not a dozen miles away (perhaps only a 10 or 15-minute drive), they were in abundance.
So, what’s important to realise is that not every area will have the type of property that you are looking for and not every property that you’re going to find (even if it is the right size), will have the right physical configuration. Well, not unless you’re prepared to do some fairly major adaptations to it.
Of course, there are some investors who buy old hotels or B&Bs with this configuration, which they turn into multi-room HMOs. It can be done. Quite often though, building extensions will be required – even if you’re looking at converting a simple house.
What you need to think about when you’re creating an HMO is that the property is going to have a specific requirement for shared accommodation and the kitchen, in particular, might prove to be a challenge in terms of size.
One way around this could be to make the kitchen larger using one of the other rooms. However, you’re probably not going to want to do this as you would then lose a room. Instead, what you could do is build, for example, a conservatory on the back of the property.
One of the great things about doing a conservatory is that if it’s of the right size, then you wouldn’t need planning consent because there’s permitted development. Yes, you would need to inform the Council and any work must conform with building regulations etc., but you wouldn’t have to make a planning application and this speeds the process up. In fact, it makes it much more streamlined and straightforward, but it is all work that you need to factor in.
Next week, we’ll think about this in more detail and will consider how to deal with estate agents when we’re looking for houses to convert into HMOs.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop