Are you struggling to find good HMO deals? Are you feeling overwhelmed about all of the things you need to do to source the right properties for your investment strategy? Perhaps you’re not sure where to start, you’ve hit a roadblock, or feel stuck in a rut.
Don’t worry! We’ll break down the process of finding deals and how to improve your sourcing strategy. When I’m shopping for HMO deals, I know unquestionably what exactly it is that I’m looking for before I even start searching. That makes it really easy for me to identify properties that will and won’t work for my strategy.
Read about the four pillars of finding HMO deals, which you need to know and understand before searching for any properties, below or check out the full episode on The HMO Podcast.
1. Types of HMO
The first pillar of finding deals is understanding the type of HMO you’re looking for or are trying to create. If you’re planning to buy a property and turn it into a HMO, you need to be clear on the end-use. Ultimately, this is determined by the type of tenant you want to let your property to.
Students, professionals, and social tenants all live differently, so the type of tenant you’re targeting will determine what you need in terms of local amenities and even facilities within the house.
Also, be mindful that there will only be tiny pockets within a city or town where a certain type of HMO will work. You can’t just draw a radius around a campus or city centre and assume that students or professionals want to live there.
Start looking under the microscope in those small pockets where students or professionals already live. You can’t afford to be wasting your time considering properties on the other side of town where your chosen tenant type doesn’t live.
2. Size
The second pillar is understanding the size of HMO you need to invest in and why this plays an important role in your property sourcing strategy. When you look at the size of properties and break it down by the average pound per square foot, you can get a really broad average of what properties cost.
Then, start looking at the specific fundamentals you need in a property, including the current number of bedrooms and features that will allow you to add space. The property is going to need to be a particular size to start with and has the ability to add more space, potentially through a garage and/or loft conversion and rear extension.
That can then help you create the additional bedrooms that you need for your HMO and allow you to recycle some capital by adding value. When you know exactly the type of property and size you need for your HMO strategy, you can easily factor this into your search criteria. You can then tell people exactly what you’re looking for, making it really easy for everyone to understand.
By being this specific, agents won’t give you details on properties that don’t fit your criteria, and you don’t need to waste your time looking at any other kind of property.
3. Location
The third pillar is location. Location determines the supply and demand, the likelihood of capital appreciation, and the property’s desirability and resale-ability. Think about what features and amenities a particular location offers.
It’s also helpful to consider whether there are local infrastructure plans and a regeneration program in place in the area that you can take advantage of, helping further improve a deal’s prospects.
So, when you’re assessing different locations, make sure you consider these factors, but above all, if there isn’t steady, consistent demand from tenants for the house that you’re proposing to create, then don’t waste your time on that area.
Do all this research first, so you can zoom in on one location and fully understand the area that you’re targeting. When it comes to finding good HMO deals, you should be narrowing your focus down to just one area.
4. Evaluations
The fourth and final pillar is evaluations. You need to be able to appraise deals and understand what exactly makes a good deal. It’s important that you also understand the 10 points to stress test in every deal evaluation. This helps you see what a deal might look like under any circumstances.
You need to be able to effectively construct a deal appraisal and also interpret what the numbers mean. If you’re not confident with this, spend some time understanding deal evaluation, the numbers involved, and how to interpret what this information is telling you about a deal.
To assist with this, you might want to use your own spreadsheet, or even better, the ‘deal appraisal stacker’ inside The HMO Roadmap will show you the performance of deals.
Once you’re nailed deal evaluations, you should know what your perfect deal looks like, and that’s the only thing you should go out shopping for. You can then set search filters, contact agents, and know what to tell people you’re looking for. Then, it’s time to start doing viewings and pipelining deals!
If you can master all four pillars of finding HMO deals, this will help you understand what a good deal truly looks like. And then, you can cut everything else out that doesn’t fit within your criteria!
By creating a property sourcing strategy based on these pillars, you’ll start finding the whole deal finding process much easier, and you’ll start to build a more profitable and sustainable HMO portfolio.
To learn more about finding HMO deals, there are courses and lessons on each one of these pillars within The HMO Roadmap, so become a member today to help you master the four pillars of finding deals.
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 and Smart Property, a specialist HMO property investment and management company. He 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!