How to Build (and maintain) a Sustainable HMO Property Portfolio

how to build hmo portfolio

Landlords have long since recognised the incredible yields offered by using property as a way of building up a profitable and sustainable HMO portfolio. If you are just getting started as a new student landlord hoping to dip your toe into the water or perhaps are considering adding to your student housing stock for the first time, let’s talk about some of the ways that you can start to build your own HMO property portfolio and take advantage of the current housing landscape.

Chasing Yield or Capital Appreciation

With more than 160,000 HMO properties currently owned by landlords across the UK, many investors are leaving the buy-to-let market behind and are instead opting for student accommodation and HMOs as a way to increase yield or to increase capital appreciation.

Obviously, the more HMO properties you own, the higher your profits will be, and with UK HMO mortgage rates remaining stable over the past few months and providing competitive rates for borrowers, now is an ideal time to grow your portfolio and secure a fixed deal before Brexit this October.
This twinned with a stagnant housing market that has seen property prices grind to a halt following a prolonged period of gains means that larger properties are often sat on the market for far longer than they would have done 12 months ago. Many buyers looking for a new family home are holding off on the purchase of a bigger property because of Brexit uncertainty.

Although this isn’t great news for the residential buyer or seller, it does offer a great opportunity for the student landlord looking to increase their HMO portfolio and to chase bigger yields. However, if you’ve already utilised your credit and HMO financing avenues and just want to maintain your portfolio as the UK economy weathers the Brexit storm, it is good advice to hold on to your current student accommodation.

The outlook for property prices could go either way, although many experts have anticipated a knee jerk reaction to Britain leaving the EU over the first few months that will see the value of property fall.

The Power of Compounding Profits and Re-investing

No winning streak can last forever, but if you’ve got a solid strategy in place for compounding profits and taking small gambles on the UK property market, this can act as a useful tool for growing your HMO accommodation investments.

One independent buying agent, Henry Pryor predicted a drop of around 5 per cent in the second quarter of 2019 and prices in London have already started to backslide, but it remains to be seen if the rest of the country will follow suit.

Although you might be tempted to wait for house prices to go lower and plough all of your profits into your new student accommodation purchases at that point, you need to be prepared for any market changes that come your way too. Statistically, we’ve seen mortgage rates rise to unmanageable levels as property prices plummet, so if you want to purchase and maintain a profitable HMO portfolio, it is essential that you don’t stretch your resources too thinly. You’ll still need to retain a good cash flow in order to maintain and improve your assets.

Often, big gains come with big risks, so being cautious at a time that the UK economy is facing a period of turmoil is a smart move for student landlords.



Adding Value Through Improvement

As previously mentioned, you need to retain a healthy amount of cash flow in order to undertake improvements and carry out essential maintenance on the HMO properties you own. Overstretching your finances and leaving problems such as leaky roofs for months on end as you’ve tied up your finances in too many properties can lead to your existing assets depreciating in value.

A clever way of creating a sustainable HMO property portfolio is to ensure that you have the funds available to make improvements to the student accommodation you already have before considering the purchase of another.

Many student landlords and HMO landlords have come under fire for failing to maintain a safe and secure student accommodation and have faced fines from local authorities for putting their tenants at risk. Improvement isn’t just about adding value, it also helps safeguard you against the threat of landing on the wrong side of current HMO housing
regulations too.

However, if you’ve managed to strike the right balance between having a manageable HMO portfolio and having good profit margins, making improvements to those student properties will also help you to ensure that you never have any vacant rooms.

HMO and student accommodation tenants are becoming increasingly demanding when it comes to finding the perfect property for their needs, and with more and more student landlords seeing the benefits that HMO properties have to offer in terms of yield, the competition is stiff to attract the right type of tenant.

Poorly maintained properties that haven’t received any improvements for some time are often rejected by potential tenants at viewing stage – some beforehand- so adding value through improvement won’t just increase the value of your HMO, it will also ensure a steady stream of paying tenants.

Poorly maintained properties that haven’t received any improvements for some time are often rejected by potential tenants at viewing stage – some beforehand- so adding value through improvement won’t just increase the value of your HMO, it will also ensure a steady stream of paying tenants.

Reducing Risk While Maximising Return

As stated above, making improvements has two-fold benefits when it comes to HMO investments, but keeping up to date with the latest décor trends and tenant needs is a great way of reducing risk while maximising return.

Investing in an additional HMO property might seem like the easiest way of increasing your profits, but with bigger yields come bigger risks, so a more sustainable way of ensuring good profit levels is to keep one step ahead of your competitor’s HMO properties by making the most of the student lets you already have.

From adding additional services should as a cleaner, free wi-fi and Netflix to adding bold pops of colour on to bare walls and desks with extra storage in each room, these small improvements can command higher rents. Changes like this are a relatively risk-free way of increasing yield and maintaining a good standard of accommodation.

Outsource Where Possible

Once your HMO property portfolio starts to grow, you may find yourself overwhelmed with requests for small repairs, potential tenant viewings, and tenancy paperwork, leaving you little time to seek out new HMO investment opportunities.

That’s why it is always worth investigating professional companies to help you manage your existing properties including lettings agents to help source and manage tenants, using property managers to run developments or using a professional business to help you identify and acquire new properties that are worthy of investment.

Each of these businesses has a unique skill set that a student landlord can call upon at any time to help them to build and maintain a sustainable HMO portfolio, so it is essential that you seek out the right companies that have a thorough appreciation of your property investment goals, your target market and the local housing landscape as a whole.

Without this insight, you run the risk of having to do the lion’s share of the work yourself despite paying them for their services as they do not have a clear understanding of your HMO goals.

Make sure that you do your homework before engaging any business to help support you when seeking to build your own HMO property portfolio.

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