Case Study: Creating an HMO where others thought there was no demand

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Clair McArdle recently completed her latest HMO project and is achieving fantastic returns in an area where many others were put off by local market conditions and wider (mis?)conceptions about demand in the area.

We paid her a visit to understand why she wasn’t put off, and exactly how this conversion from a tired family home into a high-end 5 bedroom professional HMO worked out for her.

You were initially uncertain about the area. What research did you do to validate that it actually did make sense to create an HMO here?

The area doesn’t attract young professionals in high numbers, and there is no denying that large parts of the town are quite deprived.

When I first started investing in HMOs, there weren’t any high-end rooms being advertised, and the SpareRoom stats were ok but not overly promising, so I looked further afield and began investing in places like Manchester where the market was more obvious.

Demand analysis is crucial when deciding on where to buy your next HMO. This video covers some of our top tips on using SpareRoom to carry out part of your demand analysis.

I made the mistake of assuming that because there were no nicer rooms available, there would equally be no demand for them.

But over time it kept bugging me, as I heard friends in the corporate world talking about professional contract staff struggling to find places to live.  After a while I had to confirm my suspicions, so we went to talk to one of the biggest local employer who confirmed there was a need, and I started planning from there.

What attracted you to this house and made you think it’d make a great HMO?

Location, price and potential!

Its on a great street, and ticks all the boxes  for local amenities. It was a little tired as well, which allowed me to buy it at a better price.

And whilst it is a big house, there was potential to improve the layout and generally modernise the property, keeping the total spend roughly in line with the estimated end value.

Adding en-suites to some of the bedrooms was just one of the changes Clair made to the layout to make it more suitable for multiple tenants.

On the downside there is a very scruffy neighbouring house next door, which was probably putting off owner occupier buyers, but for HMO tenants they aren’t as bothered if next door looks a bit tatty when the rest of the street is well maintained, and especially when their house is finished to a high standard.

How have you found the process of moving from flipping houses to converting them into HMOs?

Most of this will sound very obvious – there are a few differences, but a lot is also similar and common sense.

With both you have to think about appealing to your target customer. In the area I was working in, we were targeting families with our standard house renovations, and retirees with the bungalows we were working on.

With professional, higher end HMOs you can focus more on trendy interiors to stand out from the competition, and you’re obviously trying to appeal to a younger market.

On other difference related to the longevity of what we were creating. With our flips we obviously had a strong focus on quality, but standard products and finishes were more than adequate for this.

With the HMOs I am very aware of additional wear and tear caused by multiple tenants, and also future proofing it for the long term.

With this in mind I incurred some additional expenditure up front doing things like replacing all the central heating pipework and picking more durable materials, as I don’t want to be going back in 3 years time to replace or repair something that should have been done up front.

What element of the project are you most proud of?

I am very happy that I trusted my gut instinct and used my local knowledge to actually get started with the project!  When people ask ‘is there much demand for that sort of thing round here’, it can knock you, and I had a bit of that!

I’m obviously pleased as well with how it looks. Local building control said they have never seen an HMO like it before. The feedback from the young professionals that have taken rooms has been phenomenal as well, and they’re all excited to move in and call it home.

Financial Overview

Purchase Price – £128,000

Stamp Duty & Legal Expenses – £4,800

Renovation Costs – £41,000

Furniture & Appliances – £5,000

Total Investment – £178,800

Estimated End Value – £175,000

Monthly Rental Income – £2,209

Monthly Running Costs – £425

Monthly Mortgage Costs* – £593

Monthly Profit – £1,191

*based on 85% LTV, interest only, with Kent Reliance at 4.79%

Cash Left In – £29,250

ROI – 49%


17th August 2017 – Purchase completed, keys collected and 15th November set as project completion target

Weeks 1-5 – Damp Proofing, layout changes and first fix

I had scheduled in some minor damp proof works to start the Monday after completion, along with work to strip the property out – which took 3 weeks as there was a lot of wallpaper to come off.

I asked for certain areas to be done first, so the builders could start making layout changes upstairs as soon as possible.  The first 2 weeks all went to plan, but then I decided to alter plans a few weeks into the project to create an open plan communal space downstairs, and take the chimney breast/wall out that split the kitchen / small living room.

Creating an open plan communal space will be much more appealing to young professional tenants looking for a sociable place to live.

This meant getting the kitchen re-designed, I lost my joinery slot with my usual joiner and I had to start re-scheduling and looking for other reliable trades to do the work.  From being an ‘easy to meet’ schedule, it now became essential for everyone to work together agreeing the order of rooms to be worked on to still meet the finish date I wanted.

Weeks 6-8 – Plastering & Second Fix

Weeks 9-11 – Decoration

I had booked my decorator in for 16th October, which fitted my original plan before knocking an extra wall down. This became the critical path, as he turned down other work and was straight onto another job – so I had to be ready for them!

The whole team agreed it was possible to get to a point that upstairs could be ready to at least give a clear run for the first week.  During this time there was also tiling and second fix plumbing, as well as the kitchen installation, so it was a very busy two weeks.

Week 12 – Flooring & Finishing

The rooms were advertised 2 and a half weeks before the completion date, with 3 rooms filled in that period of time and the remaining 2 filled 5 days after completion.  The first tenants moved in on 18th November, only 3 days after our original planned completion date, with the house fully occupied by December 5th.

With rooms this nice, it’s no wonder Clair filled the house within 5 days of completing the work.

About Clair

Clair McArdle is a full time property investor and mum living on the Fylde Coast in the North West of England.  After an extensive and successful career in the corporate world, she made the jump into property starting with flips before expanding into the HMO sector. She’s looking to continue to grow her HMO portfolio as well as returning to flipping houses, working with her own funds as well as with a number of private investors.  She can be contacted via Facebook or LinkedIn.

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