Why do people sell their HMOs?

 “Why are they selling their HMO if it cash flows so well?”

We get asked this a lot by potential investors (usually first time investors).

Answer usually goes something like this;

Landlords sell for all types of reasons but usually one of the following:

• Fall out with business partner

• Divorce

• Change of strategy (moving into development common)

• “I prefer BTLs”

• Can’t make the HMO work (means too tired and worn out as a self-managing landlord or has chosen a crap managing agent)

• Need money for other ventures

• Retirement

• Made money on the refurb and now selling for a yield price to make a profit (flip)

• Was overpromised a ‘commercial valuation’ by the sourcer who sold it to them pre-refurb

• Had a ‘good stint’ as an HMO landlord, build a good portfolio and now it’s time to sell

Like anything, the above reasons are 50% positive and 50% negative so it’s about mitigating your risks and making sure that your exit is on YOUR TERMS and not forced upon you if and when you do sell.

A property investment remains an investment on entry, during, and then on exit - and all three components need to be right. Buying at the right price and with the correct lending, running it properly, and then selling at the right time in the most tax efficient manner all count to making an investment work.

Too much is made on the initial glory of a glossy refurbished HMO, the ‘potential’ gross income or the ‘keys-being-held-up-outside-the-front-door-photo-opportunity’ but there needs to be a culture change to respecting the middle and the end just as much as the beginning.

The initial glory means nothing if the HMO is badly operated, the layout doesn’t work for happy tenants, or occupancy is bad. If you’ve chosen the wrong managing agent or grown tired or the builder cut corners and there’s costly maintenance issues after 2 years.

The successful purchase and running of the HMO means nothing if the exit is badly timed, forced upon you or as a result of issues elsewhere. If you can’t time your sale to maximise the investment.

Risks:

• Not doing enough DD on all fronts

• Expecting too high of a revaluation and basing all numbers (and the ability to pay people back) on this

• Self-managing if you’re not experienced and ready for it

• Working with a managing agent who doesn’t care about you, the property, the tenants or the occupancy

• Overspending on refurbs and trusting one person (usually the sourcer) with the responsibility of the whole project

• Treating the HMO as too hands-off

• Basing your numbers on too high room rates that you might only get for the first batch when the HMO is shiny

We have over 100 HMOs going through sales progression at the moment and like the ratio above, it’s 50/50 of those who are selling on their terms and those who are not.

We’re always helping landlords out of a pickle (usually because of one of the above ‘risks’) and we’ve built a business on knowing how to navigate things to the landlords’s best interest but so much work is in the prep and getting it right from the start.

Conversely, we are also always selling for clients who ARE selling on their terms and who have done brilliantly - we want more of those!