Embarking on a property investment journey is much like navigating uncharted waters. For Lee and Ceri at Passive Property, their venture into the world of HMOs was initially accidental, setting the stage for an inspiring journey from novice investors to masters of the HMO game. In this blog, we unpack the key lessons from their experience to guide new HMO investors on their own path to success.
A Humble Beginning: The Accidental HMO
Like many successful HMO investors, Lee and Ceri’s journey started with an accidental HMO at the age of 25. Renting out two rooms to friends helped cover the mortgage and bills, sparking the realisation that HMOs could be a game-changer. Fast forward, and they’ve evolved from accidental landlords to strategic investors with a portfolio of over 25 rooms and counting.
Strategic Vision: From Renovation to Full-Time Investors
Lee and Ceri’s passion for property investment led them to craft a five-year plan, aiming to transition from their day jobs to become full-time investors. After renovating their own home, they strategically released equity to enter the HMO market. Recognising the need for capital for large-scale HMO refurbishments, they smartly dipped into property flipping, a move that laid the foundation for their impressive portfolio growth.
Choosing the HMO Path: A Quest for Job-Replacing Income
The duo’s motivation for venturing into the HMO property market was clear – they sought an income that could replace their full-time jobs. Recognising the income potential from a single HMO, they identified a gap in the market. In an area with run-down HMOs and a scarcity of high-end living spaces for working professionals, Lee and Ceri saw an opportunity to make a significant impact.
Strategic Property Selection: A Focus on Value Addition
Navigating the intricacies of property selection, Lee and Ceri operate in a challenging article 4 area. Their focus on sourcing run-down existing HMOs allows them to add value and refinance without grappling with planning permission hurdles. As they acknowledge the changing landscape, the duo remains proactive, exploring new strategies in response to evolving market dynamics.
Proactive Solutions for Challenges: Engaging Direct-to-Vendor Sales
The HMO market presents challenges, especially in sourcing suitable properties. Lee and Ceri’s proactive approach involves maintaining regular contact with local landlords and estate agents, actively seeking private, direct-to-vendor sales. This hands-on strategy has been pivotal in overcoming hurdles and securing valuable properties.
Market Research: A Crucial Investment in Success
Success in HMO investments, according to Lee and Ceri, requires meticulous market research. Devoting 18 months to understanding HMO dynamics in their investment area, they met landlords, consulted with estate agents, and even ran test ads. This comprehensive research laid the groundwork for informed decision-making and a strategic investment approach.
Adapting to Market Trends: Riding the Wave of Demand
Lee and Ceri have keenly observed the UK property market trends, noting a significant shift in demand for HMOs among working professionals. Rising living costs, increasing energy expenses, and a shortage of inner-city accommodation have reinforced their confidence in HMO investments. The duo remains steadfast in their commitment to this growing trend.
Compliance and Regulatory: Buying into Standard
Opting for existing licensed HMOs, Lee and Ceri leverage the fact that these properties adhere to the minimum standard. By providing high-quality accommodation, they’ve maintained a positive relationship with the council and HMO inspectors, showcasing the importance of compliance in sustaining long-term success.
Financial Strategies: Bridging, Refurbishing, and Maximising Returns
The financial aspects of HMO investments, as per Lee and Ceri, involve a strategic process. They acquire properties with bridging finance, refurbish, and refinance onto an interest-only mortgage. Leveraging specialist HMO lenders allows for higher valuations, pulling funds back out. Their approach ensures a robust return on investment, often exceeding 15%, with a focus on the return on cash invested.
Success Story: Turning £160,000 into a Profitable Venture
Among Lee and Ceri’s many success stories, one shines brightly. A property purchased for £160,000, renovated for £61,000, and refinanced at £290,000 generated an annual rental income of £43,200. Impressively, they received £87,500 back on the refinance, leaving only £13,500 in the deal. This success story exemplifies the potential for lucrative returns in the HMO landscape.
Key Decisions and Advice: Persistence, Patience, and Relationships
Lee and Ceri attribute their success to persistent sourcing of private sales, a profound understanding of their investment area, and strong relationships with the council. Their advice for new HMO investors is to start small, take time to learn, and cultivate relationships with investors and local authorities.
Lessons Learned: A Long-Term Game with Dedication
Dispelling get-rich-quick myths, Lee and Ceri emphasise that HMO investments, like any worthwhile venture, require hard work, dedication, and a long-term perspective. They caution against the allure of speedy success, encouraging new investors to approach property as a strategic, enduring game.
Follow Their Journey
For those eager to learn and follow Lee and Ceri’s journey, they generously share their experiences on Instagram (@passive.property). With a goal of achieving an additional £15,000 per month or 24 rooms in 2024, they document their insights, challenges, and successes, providing a valuable resource for aspiring HMO investors.
Conclusion: Unlocking Your HMO Potential
Lee and Ceri’s journey from accidental HMO landlords to accomplished investors is a testament to the potential within the HMO market. Their strategic approach, financial acumen, and dedication offer a roadmap for new investors seeking success in the dynamic world of HMO properties. As you embark on your own HMO adventure, remember that patience, persistence, and strategic planning are key to mastering the HMO game. Stay tuned for more success stories and expert insights in our ongoing ‘HMO Success’ series.
