Early Years of Investing in HMOs


The early years of investing in HMOs

At The Property Advantage, we’ve been chatting with several experienced investors, landlords and developers in the HMO property industry about their early years of investing in HMOs. We loved talking to these experts about their first HMOs and what it was like being a first-time landlord for an HMO. To gain some vital insights into the HMO market, continue reading below.

TPA and first-time landlord HMOs

The Property Advantage is one of the UK’s leading sales brokers in the HMO industry. We specialise in facilitating the sale of quality, tenanted HMOs.

Many buyers we work with are looking for their first HMO, so we wanted to speak with our more experienced clients about their HMO journey.

What was the hardest thing about buying your first HMO?

We asked Caroline Pattinson from Chester Homeshare what she found difficult with her first HMO purchase. She said: “Buying it and financing it in secret, while working as a bank manager. I wasn’t supposed to have “external business interests!”

Paul Owen, of Myhouse Agents in Manchester, stated that “finding the right property in the right location” was his biggest challenge. Paul Eklid from Bradford had similar issues. He said: “The hardest thing was finding a property that could be adapted relatively easily, in the right area at the right price, for the right clientele.”

As first-time landlords for HMOs, picking the right location is one of the most difficult processes to go through. If you’re struggling to find the right location and property at the price you’re comfortable with, you should seek the advice of experts in the field.

Ahmed Al-Husseiny, an investor from London, said: “My first HMO was more of an impulse decision rather than down to proper due diligence. I wanted to get into action quickly. It has worked out well but, in hindsight, I would not purchase again in this area.”

You may be asking yourself: can I get an HMO as my first investment property? The answer is ‘yes’ but you must first perform your due diligence.

James Rogers of Prospero Finance, spoke of his first HMO: “Listening to other people’s limiting beliefs regarding end value, achievable rents and location. When I did my own research, I found that these opinions were to be incorrect. I found I could not only achieve far more in terms of rental income, but I could actually break the ceiling prices for the area, which I did do.”

It’s worth noting that James invests in an area he knows well and, despite being new to HMOs at the time, his in-depth knowledge, along with his quality research and patience, meant he found a high-performing HMO at the first time of asking.

How did you narrow down your search and execute due diligence for your first HMO, and does that process differ now?

Caroline Pattinson answered: “The early days were simply the best house in the best street I could afford locally, renting by the room, within stumbling distance of the city centre!

“Now it’s about deeply understanding room demand, type, and current customer behaviour. Also, what accommodation options are open to them at different price points, the economic and regulatory/legal position? It’s much less interesting now!”

So, how can you get access to information like room demand and customer behaviour before you own your first HMO? Speak to local landlords, attend local networking events and absorb as much information as you can.

Ahmed had a similar experience to Caroline, telling us: “At the time [of my first HMO], I depended on a sourcing agent who did some due diligence but it was not extensive. My process now is completely different. I look at potential employers, transportation links, and more. I research what rooms are rented for, and how long they are taking to accommodate. I speak to managing agents on the ground to get their perspective on the area and property, and to decide which managing agent to work with.”

Any advice for first-time landlords for HMOs?

Paul Owen says: “I chose any area I knew well and already had a good demand for HMO. I wouldn’t deviate from my due diligence process.”

James Rogers was strict from the first day. “My due diligence was thorough from day one and has continued to be. It’s important to be competent and not take unnecessary risks,” he said. “The early projects are the most important. So knowledge surrounding all aspects of your projects and processes must be implemented and understood from the start.”

Are there any mistakes you made purchasing your first HMO?

Caroline has made many mistakes in her HMO buying career. She said: “Mistakes – very many over 25 years of doing HMOs. The worst one by far was trusting a builder to do a 3-bed – 7-en-suite bed conversion in 2020, who ripped me off for tens of thousands of pounds while leaving my project totally in the lurch. It was a worse experience than over 1000 tenants put together.”

It’s clear that Caroline has dealt with difficulties from incompetent builders. At The Property Advantage, we specialise in selling tenanted HMOs, but many of our clients also develop and buy C3 houses to create HMOs. Please make sure you do your research before choosing a builder and mitigate as much as you can for them potentially letting you down. This could be through going AWOL, going bankrupt or just being dishonest.

So what lessons has Paul Owen gained from his mistakes?

“Where do I start? The biggest for me is setting tenant expectations from the outset by providing them with all the property tenancy information at the outset of a tenancy, including contact details or relevant people.”

Ahmed, when speaking of learning from the mistakes he’s made, said: “Absolutely! A, do my own due diligence and do not depend on sourcing agents. B, keep a buffer for the refurbishment budget because there are always surprises or it takes longer than expected. C, a good managing agent is worth their weight in gold.”

James said: “Listening to other investors’ regurgitated comments that are solely based on other’s opinions. If your research indicates that you’re investing in a sustainable area that ticks most boxes, then you must have confidence in your decision-making process. Ultimately it is down to you.”

What can we conclude from our combined decades of HMO experience?

Take your time but trust your due diligence, and mitigate for potential pitfalls that may be out of your control.

Also, research everything. Look into tenant demand, employment, room rates, trends, property prices, builders, streets, locations and everything in between!

Try to surround yourself with a trustworthy team and learn from other people’s mistakes. Reading pieces of content like this can help you greatly!

For more about HMO investing, you can get in touch with our experienced team on 01743 612 018 or email us at info@thepropertyadvantage.co.uk.

Special thanks to Wendy, Paul, Ahmed, James and Caroline for their valuable contributions.

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