How to make money from an HMO
As you might expect from a unique investing strategy, there are a selection of income and profit-generating avenues open to you with HMO investment. By now you should have completed your quick check-in with yourself to determine what kind of investor you are.
Once you have a clear idea of how much risk you want to take on, how hands-on you want to be and how much starting capital you can commit to the project, think about the investment within four stages –
- Sourcing
- Buying
- Renovating
- Managing
It is possible to make money within each of these stages. Some investors decide to focus on one stage and become specialists in that area. With the right partners you can combine 3-5 stages that will give you the maximum opportunity for a return on your investment.
Let’s look at each of these in more detail –
Sourcing
This refers to the initial process of sourcing and selecting a suitable HMO conversion property. Some will be interested in a turnkey investment, but for maximum growth potential, investors often look at a renovation project.
It could be something as simple as sectioning off more rooms in a large family home, or it could be as complex as turning an old, listed warehouse building into luxury single-unit rooms. Determining the feasibility of a project and identifying a suitable property are key parts of the sourcing process.
But what about the time-poor investor who doesn’t have all day to spend researching? That’s where our experts at Hoxton Property can help with a ready-made selection of deals to suit every budget.
Buying
Just as with a traditional buy to let purchase, most of your profit will be made in the purchase price, not the eventual sale price. Paying too much for a property can really put a dent in your finances. Considering most HMO deals are on a larger scale than the average buy to let single dwelling property, even the smallest margin of error can make a huge difference.
There are several ways that you can knock more money off even the most attractive deal. Buying with very few contingencies, cash-only offers and buying through a corporate structure are some of the main ways to cut down the time involved in the purchase process. Time is money remember!
Finding a unique deal at a below-market price is the perfect way to get started. With our years of experience in the business and a team of researchers and analysts at hand, Hoxton Property can help make sure you never pay more than is necessary.
For some first-hand research on market prices in your area, both Rightmove and Zoopla have great analysis tools that you can use.
Renovating
How many times have you walked by an old, dilapidated office building and thought “that would make a lovely apartment block”? That’s where renovation comes into the HMO investor journey.
Adding value through the renovation process is one of the tried and tested ways to increase both the asset value and the rental income of an investment.
Due to the nature of the HMO model, renovations can be as extraordinary as budget will allow. HMO investors have access to a wide variety of ways to convert and renovate as they are not subject to the same constraints as with a regular home renovation.
Managing
Whether you decide to personally manage your HMO or hire an external company to do this, the management and upkeep of the property are of extreme importance.
With higher tenancy turnover rates and the likelihood of much more property to take care of, poor management is a big area where investors could potentially lose a lot of money.
Deciding whether to take care of the property yourself or delegate that task to someone else should depend on your capabilities and level of skill in doing so. This should never be an issue that is decided based on budget.
Some people might choose to start their HMO investment journey by managing properties on behalf of another investor. These are great lessons to learn before investing your own money!
