After a recent trip to a new development, and after several question from listeners on the theme, David takes this opportunity to talk about HMO (House Of Multiple Occupation) packaging; some of the things to look out for, and some of the tactics he employs to get the best out of the opportunity, as well as the people who will make this happen.

As David points out, sometimes funding an HMO for an investor can be a “mysterious and opaque art”, but with David’s invaluable guidance, maybe the process can be made a little easier...   

KEY TAKEAWAYS

• Most cash investors will always want to leverage at the back end - they’ll always want to get as much money out as they possibly can, so that they can reinvest in other projects as soon as possible.

• You ideally need a power team behind you that can deal with the finance - Before you even begin to look at houses, and before you start to talk to investors, get your finance team in place.

• You need a commercial mortgage broker - HMOs require commercial finance. It is imperative that you do not try and obtain a buy-to-let mortgage for this type of deal. As soon as you start to convert a property into a HMO, everything changes, so you need the correct type of finance at the start.

• The glue that holds the deal together is a local commercial valuer firm - By combining the known and trusted valuer firm with a commercial broker and lender, this power trio will work together to bring this to fruition.

• Lenders seem to come back with multiple valuations. The first is yield-driven valuation based on the rent roll. The second is a multiplier, an integer used to multiply the rent roll figure by. They also take a “bricks and mortar” valuation. Also, they favour supplying a “Yield-driven valuation with vacant possession” - literally a valuation based on the rent roll, but on the basis that no one is in the house paying rent.

• Your fee should be four times the gross rent monthly, plus ten percent of any of the work to convert the property to convert it into an all en-suite HMO.

BEST MOMENTS

‘You have to swim through the treacle of requirements before your investor can get their loan’

‘You need in your power team, people who can help you’

‘On a commercial mortgage you’re going to have to leave a bit in’

‘The banks are interested in what happens when things go wrong’

‘Lenders want you to have some skin in the game’

VALUABLE RESOURCES

Property Sourcing Profits Podcast

ABOUT THE HOST

David is a property expert with over 25 years’ experience and his own portfolio of 26 units. His current rent roll is in excess of £10k per month. He is also a partner in a Deal Sourcing and Packaging business in the North West of England and has sourced over 250 properties for investors since 2004. In recent years he has, by necessity, had to develop an expertise in LHA strategies.

This area is increasingly becoming a niche for him, and he enjoys empowering other landlords by sharing the knowledge he has gained. The ultimate purpose when sourcing properties in this sector for investors is to minimise risk while maximising profit. He has had to find answers to the challenges of Tenant Find, Management, ensuring rents are paid and the transition to Universal Credit.

These are strategies he uses in his own business and also on behalf of investors. His investor clients regularly achieve annual gross yields of over 20% with high occupancy rates and voids resolved, sometimes within hours.

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