A quick guide to understanding the HMO property market

At The Property Advantage, we know the HMO property market very well. We have years of experience dealing with HMOs in the UK property market and have worked with landlords, investors, developers and more. If you’re looking for some vital information on the HMO market, then follow our quick guide below.

Multiple exits

With there being many different buyer types seeking tenanted HMOs, the property market is more reliable at achieving an elusive commercial or yield-derived value for your property. Unlike refinances where, if you manage a down valuation, your options to maximise value disappear, there are actually multiple exits for HMO sales.

Capital appreciation

Recent capital appreciation rises in the South East of the UK, predominantly, have meant that it is sometimes difficult to apply a yield sale price to four, five and even six-bed HMO properties. The reason for this is that the house values have risen above the HMO value. This isn’t necessarily a bad thing for selling an HMO, though, as lender and buyer confidence can be better.

Identifying buyer type

If your property is worth more as an HMO than bricks and mortar, then identifying who your buyer type is and, more importantly, if they can afford to buy, is the trick you’re looking for.

HMO premium

To unlock an ‘HMO premium’ you will have to agree to a cash top-up in many cases. This bridges the gap between the lending level and the sales price. How much of a top-up is required depends on the rarity factors and the unique selling points of your HMO.

If your HMO property is a low-earning four-bed outside article 4 with old furniture, unlicensed and with no en-suites, a buyer will not pay any ‘top-up’. However, if you have a six-bed with en-suites throughout, excellent management, with great build quality, it is inside article 4 with a licence, then a buyer would see great value.

They would potentially part with around 10% cash above the risk-averse lender level. Value has to be there for the buyer. You’re unable to sell your HMO for more than bricks and mortar because you’ll see sales constantly falling through when buyers cannot get full lending.

Cash buyer market

In the HMO property market, there is a strong collection of cash buyers. Cash buyers have lots of experience, though, and can see when they’re being targeted. For example, if an HMO in the UK property market is overpriced with no unique selling points, they’ll know and will find yield value elsewhere.

At The Property Advantage, we often have people ask us to “sell to some newbie in Hong Kong”. Our response is always “no”.

Preparing your HMO for sale

Failure to properly prepare your HMO for sale will see the value depreciate. We have plenty of examples in our pipeline of current HMOs in the same area, with the same income and conversion date selling for a difference of between £50,000 and £75,000. This is purely down to a lack of quality management and maintenance. Look after your property!

Stock isn’t the issue

Always try to remember that HMO stock is not the issue. There are too many properties for sale at any given time. You can see this by a simple search on property listing websites. The ones that sell are the ones that are pitched properly and have the perfect balance of value for buyer and seller.

No hiding place

In the HMO property market, there is no hiding place. If you’ve had a significant down valuation and then try to sell for 30% above this level, you will be found out. If the HMO has a chequered tenancy history, a bad management structure, non-paying or unhappy tenants, the incorrect planning class, or tenancies not set up correctly, you will be found out.

People buying on the HMO property market know what they’re doing and can see issues a mile off.

Variables

Finally, if you’re searching for a quick cash sale and a high business or yield value for your HMO on the property market, one variable will usually have to give. You’re unlikely to get everything you want out of a deal like that.

Contact The Property Advantage

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.