Do HMOs Work?

 


Every non-article 4 area in the ‘North’ has the potential to be the Wild West in terms of ‘packaged deals’ from sourcers.

Cheap as shit terraced houses with fancy architect’s drawings, a superb looking spreadsheet to highlight the yields and ROIs and a mood board with mustard feature walls, en-suite designs and anthracite kettles.
Low purchase prices because there’s an abundance of terraced houses but a disproportionate amount of money sunk into the refurb and fit out (plus often high borrowing costs) only to create a product that there is no demand for.
Unsustainable room rates that tenants won’t be happy paying for the long terms will equal either a constant turnover of new tenants or a reduction in room rates to mitigate voids.
Non-article 4 areas are a developers paradise, every HMO above Birmingham looks good ‘on paper’ or on a spreadsheet.
Is the demand there from tenants?
Are you developing in an area that gives you a higher chance to ‘add value’, refinance money out, work with a deal packager for a ‘hands-off’ process but missing the key components for any HMO to work long term?
Tenant demand and creating a product that solves a local housing need.
Non-article 4 areas can be saturated with dozens of HMO conversions under development or dropping off the conveyor belt at any time - this means the local area needs a robust and varied tenant base to sustain such numbers.
In most non-article 4 areas in the North, the average tenant only wants to pay £80-£95 per week for a decent room - this is your market. Anything above these room rates and you need to be in high demand areas or have a location that can sustain the £120+ room rate over the long term, and there aren’t many.
HMOs are being developed in low demand areas based on ludicrous end room rates and refinance expectations, solely driven by the sales pitches of local property sourcers who earn from the property ‘find’ and the project management and the motivation or commitment to providing a service that includes keeping the rooms full at the room rates promised falls by the waste side. It’s easier money plucking another terraced house off Rightmove and selling it for a fee to another overseas or London based ‘developer’ and getting upwards of £10k for their involvement from source to conversion.
I travel the country week in, week out visiting HMOs in every micro-market available.
HMOs work EVERYWHERE providing they satisfy a local housing need - if they are on point for what the tenants are looking for.
Unfortunately, most tenants in non-article 4 areas in the North are not looking for 10-bed over-designed, over-spec’d and over-priced HMOs that were only created as a vanity project or a means to an end to get a higher refinance figure.
If you’re considering a new HMO development in a new area stop and think about the motives behind creating the product that you’re tempted to create - is it for the benefit of the tenants or the benefit of instagram?

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