HMO Property of the Week

HMO Project Summary

A property found through a local estate agent. It had been taken as a part exchange by a developer. As the developer was becoming more desperate to offload, I managed to get a sizable chunk off the asking price. However, the house needed a lot of modification in order for it to work properly as an HMO. Its ace attraction was it had 3rd bedroom in a large converted loft. This is very rare in my location, but it meant that I could turn this into a 4-bed, and it would give me a decent cashflow figure.

The main works were involved with removing a shower room on the ground floor and integrating the space into the kitchen/living area, creating a shared bathroom on the 1st floor and an en-suite in the loft. 2 chimney breasts were taken out. Unfortunately when the chimney breasts were removed some unexpected works were discovered. A major part of the 1st-floor lath and plaster ceilings needed to be removed, and part of the flooring around the chimney breasts needed to be structurally strengthened. The mess was horrendous.

The project sucked in a bit too much cash, but if I had to do it all again I would, as I don’t think I could have achieved the same cash-flow figure had I purchased something else.

HMO After Refurbishment Photos

HMO Purchase

Purchase Price
£125000
Purchase Costs
£22088
Purchase Method
Cash
Loan to Value
0%
Loan
0
Purchase Capital Employed
£147088
Purchase Date
June 2018
Acquisition Source
Estate Agent

HMO Planning

Planning Use Class Before
C3
Planning Period
2 Months
Planning Acceptance Date
-

The alterations required building regulations notices, these were done during the buying process and were approved prior to project commencement. The property is not in an Article 4 location and no license is required as it only has 4 bedrooms/tenants.


HMO Planning Consultant: N/A

HMO Licensing

Licensed # Units
6
Licensed # Occupants
6

None… I like to keep things simple, and in my location there is no Article 4 and no licencing needed for a 4 bed HMO as long as there are no more than 4 individual tenants.

HMO Licensing Consultant:N/A

HMO Refurbishment

An extensive update of the property was required, some minor structural works, a lot of re-plastering. New kitchen, a bathroom and an en-suite. I have designed the property to tick all of the boxes in terms of customer expectations and then some. I also designed the interior to withstand many years of tenancies and be easy to maintain.

In order to simplify management, I specified a Masterkey system, so I have 1 key that opens all doors, an Inspire Internet heating control system that means the tenants can’t screw up the heating settings, easy to access isolation valves for wet facilities that enable quick and easy replacement of wet appliances and suites. For the tenants I specified a boosted wifi network that gives all rooms high-speed wifi, HDMI points to all wall mounted TV’s so that tenants can plug and play their own a/v devices, lots of storage, desks, integrated ambient and work lighting.

Refurbishment Time Frame
6 Months
2 x Bathrooms
£10000
Kitchens
£7000
Redecorate
£2000
Rubbish Removal
£1000
Furniture
£5000
Electrics
£8000
Plumbing
£7000
Loft Conversion
£17877
Rear Extension
£15000
Flooring
£3000
Total Refurb Cost
£67877

Main Building Contractor: COMSERVE CONTRACTING

HMO Before Refurbishment Photos

Floor Plans

HMO Architect: N/A

Rental Schedule

Double Ensuite
£475
Double Ensuite
£450
Double Ensuite
£425
Double Ensuite
£425
Double Ensuite
£400
Double Ensuite
£375
Total Gross Rental
£2550

Lettings & Management

I pre-let this property so the day after photos were taken, all of the tenants moved in. I manage the property, which takes up very little of my time.

Pegasus Property Lettings.
Stoke-on-Trent

Finished Project Cashflow Summary

Gross Rent
£2550
£315
£339.15
£127.50
Voids
£127.50
Net Rent
£1640.85
Net Cashflow
£1036.85

Financial Summary

Total Costs
£214965
Gross Dev Value
£225,000
Value Increase
£10035
ReMortgage LTV
75%
£168750
Capital Left In
£56250
Gross Yield
13.60%
Gross Profit
£1036.85
Net Yield
8.75%
Annual Gross Profit
£12442.2
ROCE
22.12%
Occupancy to Break Even

Key Learnings

1. Luck has something to do with it…
2. The next one needs to be a 4-bed…



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