Today you’re stuck with me I’m afraid as I’m digging deep into HMO’s and our own HMO story to share some insights into the investment strategy that helped us escape from the corporate world.
We’ve obviously shared some details of our story before in our monthly updates, but never have we looked at the HMO aspect in isolation, and whilst we’ve expanded our focus in recent years, HMOs got pretty much all of our attention between me leaving my day job, and Victoria then being able to do the same several years later.
They are without any doubt in my mind the highest consistent income that can be achieved from residential rental property, and I know what you might be thinking, it’s easy for us because some of the first deals we did were quite a while back when property was cheaper and competition was less intense, but towards the end of the episode you’ll hear about our most recent HMO project which we completed this year, and we’ve got plans to do many more.
So if you take one thing away from this, let it be that there are still phenomenal opportunities to invest in the HMO market.
Thankfully, I am not on my own today as I’ll be joined by Victoria shortly to get her views on our HMO story – which is all part of HMO month here at Inside Property Investing. We have got a ton of stuff happening this month in the lead-up to us opening the annual enrolment for the Inside HMO Investing course and coaching programme at the end of March. So, for each of the next four podcast episodes, we’ll look at the market from a different perspective starting today with our own story.
Listen to this episode below:
Here’s what we discussed this time:
2:06 – Mike runs through the next few episodes schedule and guests.
2:21 – He runs through the free goal setting challenge that is taking place on March 15th and free video series.
3:35 – Mike and Victoria discuss how HMO’s are a defining part of their property career and how it led them to be able to leave the corporate world.
4:13 – Victoria tells us how it made them realise exactly what was possible in the property world. It allowed them to be free, took them out of the 9-5 and really founded their journey to where they are today.
5:30 – They discuss HMO highlights.
6:22 – Where they were at and the experience they had when they first embarked on their HMO journey.
7:35 – How the first HMO was accidental and how they were both working at Proctor and Gamble. They discuss the Newcastle property market and Mike’s first 3-bedroom flat that he bought for £98,000 and wanted to add value to so spent £15k on renovations. It was his own home with 95% mortgage at £300/month.
11:03 – Mike invited his friends to live with him, which is why he still believes HMO’s work so well now – people want to live sociably.
12:52 – Victoria talks about how the light bulb moment didn’t come straight away, but after they bought a flat together.
15:34 – Mike discusses the Rent a Room Scheme.
16:31 – How mini HMO’s still have their place – they don’t have to be big. Mike believes the market is still very much there.
17:16 – Fast forward a couple of years, and Victoria chats through their next intentional HMO. Mike had left the corporate world but Victoria was still in it.
19:31 – They tell us about how they bought a repossession of a house in Stockport being used as a cannabis farm for £95,000.
22:22 – Victoria discusses the official HMO mortgage and the figures that went into it.
23:56 – Mike discusses how he stacked the numbers, what drove them to this particular HMO, and how it all panned out. He tells us more about the Stockport market at the time. They made some big mistakes on this, but learnt so much from the process – getting started is the best education
25:37 – Victoria goes over the renovation costs and timing. She tells us how they under-budgeted and under-scheduled and realised quite quickly how a HMO conversion can spiral. They still have the property today and it makes them over £1000/month.
27:18 – Don’t make the mistake of squeezing bedrooms in at the expense of other things. Fewer bedrooms tend to give you higher rent per room. This is all comparative to the amount of communal space.
29:25 – Mike takes us to the first foray into commercial HMO conversions and how they focus on these now. Victoria points out that there were a few projects in the middle of these two.
32:16 – How Victoria spotted their first commercial HMO and how she has an affinity for Cheshire red brick. She talks us through it. It was 225sqm of office space for £200,000 – 50% cheaper than residential.
35:32 – Mike discusses how it was their first HMO to residential planning application too, and how it was quite stressful and was firstly refused. With hindsight, it was a positive step.
37:11 – Victoria believes it’s still the jewel in the crown of their portfolio – particularly because of the communal area.
38:13 – Mike talks through the numbers and how it had a large budget for this one. They spent £120k on renovations to create a 9-bedroom HMO. They had a £450k end valuation and got all money back out – they say how they were immediately hooked. Cheaper prices, lower competition, better dimensions, and higher valuations.
40:02 – Victoria discusses how you should look at what other people are not buying and find a way to make it work. Mike discusses learning from each project, and from this one, it was about getting the right help.
44:28 – They move onto their most recent project in Sale, but it jumps forward quite a few years. There have been more HMOs in the middle.
45:35 – It’s still a commercial conversion but it’s a mixed-use scheme. This has a retail unit over two floors and a six-bed HMO at the back. It’s in a new area for Victoria and Mike, which was a target area for them, which they bought for £220,000 and spent about £140,000 renovating in total.
48:29 – Mike talks through the figures on it and how it brings them a really great income.
49:00 – Victoria tells us how there are a few things that are particularly interesting about this project such as the sourcing of property in a more affluent area. They discuss how it was listed incorrectly and how that helped them hugely.
50:45 – They also talk about the lack of competition on Spare Room in Sale.
52:23 –They discuss the fact it’s an Article 4 area.
Find out more about our HMO month :
So that’s all we wanted to share today. Hopefully gives you some good insight into the strategy that allowed us both to quit our corporate jobs and create more freedom in our lives.
We get a lot of the same questions from aspiring HMO investors trying to figure out exactly what’s going on with the market just now, so If you’re totally new to the HMO industry and want to understand more about it then we’ve got a free 22-page guide you can download instantly which will talk you through the HMO market, the different types and sizes of HMOs, the most common and profitable tenant demographics, and some real-life project case studies.
We’re also hosting a free 5-day property goal setting challenge starting on March 15th which we’d love for you to join and get our help to figure out your vision, the 3 types of freedom you should be working towards, and how your goals can be converted into an achievable property plan, through daily assignments, a private discussion group and live coaching calls.
And finally, we’re launching a free video series the week after the goal setting challenge that’s going to help you understand how to get your first HMO in the bag by the end of the year, so if you already know this is the path you want to go down but you need some help to get started, make sure you register for this video series.
Visit InsidePropertyInvesting.com/HMO for all the details.