Photo by Wilson Finch Properties

There are so many opportunities when it comes to HMO investment, and many advantages that make this type of investment the gift that keeps on giving! Despite some of the ongoing and upcoming challenges and changes across the industry, there are still plenty of reasons to invest in HMOs.

Here we’ll talk about the 12 gifts of HMO investment and ways you can make the most out of your HMO properties!

The Delights of HMO Investment

There are some great gifts that come with investing in HMOs, so here are some of the most popular advantages of this type of investment and how you can ensure you get the most out of these benefits!

1. Generating Cash Flow

More and more investors have started investing in HMOs, and this is often to generate steady cash flow. HMO investment is a great strategy for investors who are prioritising creating a cash flow-ing portfolio, and you can use the HMO rent-to-rent strategy to really supercharge this!

Generating solid cash flow allows you to build a recurring income stream, and you can then use that money to reinvest into your HMO business. So, set realistic cash flow goals for the short, medium and long-term.

You also need to learn how to accurately forecast your cash flow. If you’d like access to my cash flow forecast spreadsheet template to help you with that, sign up for the premium membership on The HMO Roadmap.

2. Maximising Rental Yields

This is a common reason why many investors move from investing in buy-to-lets to HMOs as yields are usually substantially higher with these properties. And as landlords’ costs have gone up in recent years, improving yields has become particularly important for investors across the UK.

To effectively maximise rental returns and yields, consider the design and service offering in your properties and work on finding and attracting the right tenants. Focus on your target tenant when making any decisions about the design and layout of your HMOs and your property and tenant management service.

3. Experiencing Fewer Voids & Arrears

More tenants are in a HMO, and if a tenant vacates or falls behind in rent, landlords can still receive rent from the other tenants, helping minimise the financial impact of void periods and rent arrears. With single buy-to-lets, voids and arrears can be way more impactful.

But there are still things you need to do to minimise void periods and rent arrears in your HMO properties! That includes making tenants want to stay in your properties for longer, and it’s also recommended to require every tenant to have a UK-based guarantor.

4. Adding Value & Gaining Capital Appreciation

Through HMO investment, you might also be able to benefit from capital appreciation or adding value. In the UK, property values tend to go up over time. While it’s important to not only rely on capital appreciation with your HMO investments, this can provide opportunities to extract value, recycle capital and scale your business.

There’s a lot of value in long-term investment in the HMO sector. Finding deals where you can add value can also allow you to earn strong returns and that way you’re not only relying on the value to go up over time.

Figuring out how to add genuine value is crucial. Keep an eye out for projects where this is possible. To do this, look for properties where you can add square footage through an extension or converting a loft or garage. You can also add aesthetic value, especially through bathroom and kitchen renovations. 

The Magic You Can Create

HMO investments provide an opportunity to help ease the supply and demand imbalance. As renting is a necessity for some and a preference for others, it’s a crucial part of the housing market, so there’s an increasing need for more investment in this area and to ensure quality is a top priority!

5. Creating New Rental Units

There’s an ongoing shortage of housing across the UK property sector, and this includes the rental market as there’s a growing need for additional housing as supply continues to be unable to keep up with demand.

Many professionals are forecasting demand for HMOs to rise even more, especially as it’s a more affordable form of rental accommodation for tenants. So, with HMO investment, landlords can create much-needed new rental units.

While there’s high demand for these types of properties, you still need to get the adverts right for your rooms and reply to enquiries as quickly as possible to help you fill your HMOs as fast and efficiently as possible.

6. Producing Quality Housing

High-quality housing continues to see strong demand across the rental market, and HMOs can be an effective way to create well-designed properties. This can also help you push rents up, maybe even add value and attract more tenants to your rooms. 

It’s important to note that high-quality properties are considered a good thing both socially and economically. The private rented sector has a very key role in providing good housing, so great HMOs are a way to help increase supply and boost standards!

There are still ways to create a high-standard and well-provided HMO effectively on a budget. You can refurbish the property by redecorating the property, improving the kitchen, modernising the bathrooms, replacing the furniture and incorporating feature walls and panelling.

7. Improving the Sector

As the sector continues to professionalise, the standards within the HMO market and the wider private rented sector have improved. At the same time, tenants’ expectations have also increased, so HMO investors need to be professional and treat their investments like a business.

While there’s often anti-landlord news, headlines and government policies about negative relationships between landlords and tenants, renting is a very positive experience for lots of tenants. And there are so many landlords out there doing a great job and pushing standards up. 

Prioritise doing the right things (and make sure you’re on Santa’s nice list)! Being proactive, fair, understanding and communicating well and doing this the right way can help you make tenants feel valued. You’ll also enjoy being a HMO landlord so much more, allowing you to be merry and bright!

The Power of Building a HMO Business

There are additional advantages that come with effectively building a HMO business and what that can do for your property ventures!

8. Developing Knowledge in the Industry

While you of course need to learn a lot before you even start investing in HMOs, there’s also so much you’ll learn on the job once you start investing and when you meet and work with more professionals in the industry. The more you learn the easier you’ll find it with your HMO investments and the better results you’ll achieve! 

Developing skills and experience can also help you gain more confidence and make more informed decisions. And as the property industry is so fast paced, you need to constantly develop your knowledge and skills in a whole range of areas in order to be successful. So, ensure you keep developing your knowledge

Investing in property education and getting support from an experienced mentor can help you really level up your HMO business. There’s so much out there, including free resources, e-learning platforms, events and masterminds. And if you find the right person to be your mentor, they can provide valuable support, guidance and accountability every step of the way.

9. Gaining Experience for Bigger Projects

For some investors, building their HMO investment business is a gateway for doing bigger, more complex and more profitable projects. An example that I and many other investors have worked up to is commercial to residential developments.

The skills, confidence and cashflow you gain from building a HMO business can allow you to start investing in bigger conversions and more complex deals. That foundation can give you the ability to be able to go on and spend money and time during these larger and more profitable projects, which can be quite exciting!

However, you need to make sure you gain the right skills before moving onto larger projects. It can be helpful to start with small HMOs. Don’t make a big jump without gaining crucial experience first. Also, take the time to weigh up the pros and cons of these larger projects to ensure it’s right for you.

10. Building Relationships

Building, nurturing and managing relationships with investors, agents, tradespeople and other property professionals is essential when investing in HMOs. This can make HMO investment so much easier as you can stand on others’ shoulders.

For example, relationships with agents can help give you a crucial first look at properties or get your foot in the door. This can allow you to more easily find prospective HMO deals and grow your portfolio much more quickly. 

Additionally, relationships with investors can allow you to raise private finance, and working with the right tradespeople can help you to better manage repairs, maintenance and refurbishments in your HMOs. Working on building relationships can allow you to improve your people skills, gain more confidence and strike up numerous business partnerships.

However, this does not mean you need to get on with everyone! It’s about having the confidence to be direct when you need to, being aware of when you need to give more, pushing back when you need to and being transparent and honest. So, spend time working on building and nurturing relationships with the right people.

11. Pipelining Deals

Pipelining deals and potential opportunities can allow you to continue growing your HMO business. So, even if you can’t secure a certain deal right now or it’s not the right time to work as a potential private investor, pipeline these potential relationships and deals for later down the line.

To do this, consistently put offers in and follow up regularly. If a sale falls through and the agent knows you’re interested in it and can move fast, they’ll likely want to call you first. It’s helpful to then put all of this information into a CRM software or a spreadsheet. 

Being organised with this allows you to keep up with what you offer on properties and the last conversations you had with vendors or agents, while ensuring you keep following up on any properties you offer on. If you do this, you’ll find that you can build up quite an impressive pipeline!

12. Leveraging Your Portfolio

There are lots of opportunities to leverage your property portfolio through HMO investment. This allows you to do so much more and really scale up your property business. When investing in HMOs, you can make your money work so much harder through leverage.

For starters, you can leverage HMO mortgages and other forms of funding to allow you to purchase more properties without having to pay the full purchase price. This can help you increase the speed you can buy properties and grow your HMO business. 

You can also leverage your network, so make sure all of your friends, family and acquaintances know what you’re doing as you never know who could be interested in investing in you! With many of us spending more time around loved ones this time of year, don’t forget to bring this up into conversation.

Take Advantage of the Gifts That Come with HMO Investment

There are so many opportunities when it comes to HMO investment! Think about what the greatest gifts are for you when investing in HMOs, and consider how you can be sure you’re getting the most out of your HMO properties and investments.

If you’re looking for a network for support or have any questions about HMO investment, join us over in our free Facebook Group The HMO Community, which now has nearly 10,000 members.

And if you want to really level things up, boost your knowledge in the HMO industry and get access to useful tools, resources, lessons and case studies, sign up for The HMO Roadmap today!

Happy Christmas, and happy investing! I hope you get some time with your friends and family this holiday season, but I also hope you get a chance to think about your HMO business and how you can boost your portfolio moving forward!

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind, writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!