Thinking of selling your HMO?

So, you’re thinking of selling your HMO? There’s a few things to think about and consider in order for you to get the most appropriate sale for you and your property - value, who’s buying & who can perform, the ‘health’ of the HMO and how much marketing to do. Value I get asked to value up to 10-20 HMOs a week and, usually, the landlord wants to explore a ‘yield’ value sale - this is where the valuation is based on the rental income and not the bricks and mortar. You can start by working out the expected gross yield for your area - what have similar HMO completed sales achieved locally and at what gross yield? This is the first broad brush we use to analysis expected sale prices for our HMOs. Gross yields vary from city to town, south to north and the spread can be from as low as 6% to as high as 16%. Each area has its own pinch point. Obviously, the ‘value’ extends way beyond the gross yield driving force and we look into condition, occupancy, likelihood of getting lending, size, tenant type, net costs and locations before making a final recommendation. Some have to be sold at bricks and mortar value because they simply won’t get over the line at the higher yield value BUT the next section mitigates this as much as possible and usually means we can sell at higher prices for our selling landlords. Who’s buying and who can perform? If you value an HMO based on annual income and then punt it around a few Facebook groups, you’ll get dozens of enquiries - so much that your inbox will be full within minutes! This can often be a false economy though as most buyers that are starting out with their first HMO will be walking straight into a down valuation and the sale ultimately falling through. They key is to understand who to sell to and who can perform. Like any market, there’s lots of different buying types and many reasons why HMOs are sought after. Part of our analysis involves identifying the ideal buyer who is happy to pay the best price to the landlord because the HMO fits their exact brief. Sell it to the wrong buyer and they’ll either look for discount and the landlord misses out or they won’t be able to complete on the purchase in the first place. One of the reasons why we’ve managed to sell nearly 100 HMOs since ‘lockdown’ is because we have a diverse range of buyers and we’ve matched the right property to the right buyer. ‘Health of the HMO’ Agreeing a sale based on a brochure, a couple of viewings and some financial info is all well and good but to progress through extensive DD and legals, the HMO must be ‘healthy’. The buyer needs factual information about the occupancy history, any hiccups in the past or any current tenant issues - the real reason why landlords sell comes out, ultimately, so it’s something that must be managed. The health of the HMO also extends to having the correct compliance, regs, ASTs or tenancy agreements, DPS certs, clean title etc etc - all this will slow down a sale and possibly cause a sale to fall through. If you’re selling an HMO based on income, it’s prudent to have 100% occupancy on the day the valuer visits, for example. How much marketing to do? Selling a residential property is all about BIG exposure and as much marketing as possible but only some HMOs excel using the same methods. Learning if your HMO needs a ‘hush hush’ approach or full marketing is the trick to maximising the value on sale. I’d say form experience, it’s 50/50 in terms of achieving the best price ‘off-market’ or ‘on-market’ and, sometimes, it’s the combined approach that gets results. Remember, some buyers look for ‘off-market deals’ which means they look to pay less for your HMO whereas buyers who search via the portals tend to be happy at market value (or yield value). Conversely, larger corporate buyers or HNWs etc need off-market conditions to perform best so having the wrong HMO listed on Rightmove at the wrong time could hamper an exit. Knowledge it key from the outset.