Real life example

An investor contacted us recently because he received the following email and he wanted our views on the property. It looked like a great deal to him at just £125k for a 6-bed HMO in Newport, South Wales with gross of £2520. I’ve copied part of the email he forwarded to us below.

And it does look like a good deal if you don’t understand the Newport market.

Here are our top tips to make sure you’re not saying D’oh after your HMO purchase.

1 Don’t be dazzled by the PURCHASE PRICE

If you’re used to London prices, or frankly anywhere in south of England, then £125k for a 6-bed sounds like exceptionally good value. In this case, it is not. This is actually above market value in our view! The comparables used in the email above are for larger properties in different locations.

The most recent sale of the property in question was for £110k in 2009. This is an outlier price and we’re not sure why so high. It was possibly negotiated at the height of the market even though the sale is registered as 2009.

The most recent sales on the street are as follows:
£53,521 – Dec 12
£85,000 – Nov 12
£99,000 – Jun 12
£87,000 – Jan 12

There haven’t been any sales in the the street in the past 4 years as far as we can see. Looking at current sales in similar streets we’d estimate the current market value is between £100k to £110k on a good day. However, you may be saying but as a 6-bed HMO it’s well worth the £125k. And I’d agreed with you. But…

2 Don’t be played by POTENTIAL

It’s not an HMO! Many properties have potential to be an HMO. But will it be an HMO? Will it achieve rents of £2520 or a measly £650 per month (if you’re lucky!) as a single let. Large single let properties are difficult to let as most people in Newport do not have large enough families to need such a big home and the market is filled with more attractive and budget-friendly alternatives.

Remember that in Newport every property with 3 or more people from 2 or more households requires an HMO licence AND planning permission. Planning permission for HMOs without parking is now very difficult to achieve on new applications. It’s not impossible, it’s just more difficult.

Buying this property would require viable alternative exit options. And if you buy at-or-above market value, you could be looking at a loss on sale or paltry and unreliable single let returns if you keep the property. It’s not a tempting prospect.

3 Don’t be blinded by the BEDROOMS

It is important to remember that in HMO investing, a bedroom is not a bedroom until HMO Licensing AND Planning says it is and your HMO licence is granted!

Bedroom Basics
The other questions you need to ask yourself are…
– Are all the rooms double rooms? Remember size is everything! Single rooms won’t achieve £420 per month in rent
– Are all the rooms big enough? There is a minimum room size of 6.5m squared in Newport
– Are there enough bathrooms and communal space for the number of bedrooms you’re applying for?
– And crucially, will you get planning for the number of rooms you apply for?

Those are the top 3 mistakes to avoid…

THIS IS THE MOST IMPORTANT THING TO DO

Talk to LOCAL HMO experts in your chosen area to ensure you buy right!
Ensure your ongoing management is agreed BEFORE you buy. Your investment only works if your property is cash flowing month after month and year after year.

We offer a full hands-free service for remote landlords sourcing, refurbishing and managing your HMO.    

A truly passive income with great returns. If you have a deal you’d like us to check out for you, we’d be happy to provide free advice to guide you.

To find out more call our Property Angels on 01633 449 200

Or book a call at a time convenient to you