#IPIHazel – Using extensions to make smaller houses viable HMOs

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Another one bites the dust! We have finally finished our Hazel Grove “Mini-Mo” project and after the last article on these small HMO’s proved so popular, I thought it would be useful to share more details on this one too.

As we’ve talked about previously, we love mini-HMOs. They are low risk, easier to source and prove very popular with tenants looking for a more homely feel. Typically they do require leaving more cash in the deal so we don’t tend to buy them for ourselves and still offer them to our more hands-off investors who are hungry for strong ROIs but can afford to tie up a larger deposit.

The house

I sourced this particular project through trusty old RightMove (I’ll preach until I am blue in the face that we don’t need fancy sourcing strategies – there’s plenty of stock on the open market!) having decided that we wanted something in this specific postcode. The area is home to a large hospital, has good transport links and has pockets of affluence – I knew it would be desirable for tenants.

Mike dismissed the property initially as it looked (and still does) rather small from the outside, but actually it was a bit of a Tardis once you stepped through the door, plus it had a garage at the back which was crying out for conversion. It was the cheapest house on the market in this area, largely due to the fact it’s on a very busy main road, something which doesn’t seem to put HMO tenants off in the same way it would put off buyers or long term single let tenants.

It started life as a two and a half bedroom, one bathroom property and by adding a small single storey extension at the back and a bit of re-configuration we have turned it into a four bedroom, two bathroom shared house.

Conversion

The main work involved in this project was building an extension at the rear. There was an open garage at the back which we talked about converting, but actually when we looked at it, it proved more economical to start from scratch. Because the work came under permitted development, no planning permission was needed so we could start the build on day one.

The extension cost roughly £15k in total (I don’t have an exact cost because some of our costs like the wiring and plumbing were invoiced along with the rest of the house, but this is an educated guess).

Existing Floor plan
New Floor Plan

These days we aim for a “cost per room” of £40k when looking at HMOs, so by adding an additional bedroom for £15k, you can significantly bring down the average cost per room across the project.

To explain what I mean, lets look at an example:

We buy a house for £150k, and spend £50k on renovating the property but not extending it, so that you end up with a  4 bedroom HMO. This makes the cost per room for this house £50k.  However if we buy the same house for £150k, and as well as spending the £50,000 on renovating the existing building we also spend £15,000 converting the garage or going into the loft to create an additional bedroom, our total spend obviously increased to £215,000 but our average cost per room drops to £43k, giving a much better ROI.

One of the finished bedrooms

Because we were only turning this into a four bedroom HMO, we didn’t need to apply for planning permission, nor does it require a license now or with the new regulations coming in later this year. Our ongoing approach for these small HMOs is to hold ourselves to the same standard a licensable HMO would need to be, so if legislation changes again in the future (which seems highly likely given the current governments attack on the private rental sector) then no additional work should be needed in order to meet the licensing standards.

The shared lounge area

Timescale

The entire project took about 13 weeks from picking up the keys until the first tenant moved in. This was a little longer than expected which we discuss below.

What went wrong

In terms of the overall success of the project, two elements slipped compared to our original projects.  First of all, the schedule moved from a 10 week estimate to 13 weeks in total.  The delays were primarily driven by our garage conversion, which caused us a few headaches during the project.

A small bedroom was converted into a bathroom

We had hoped to be able to use the existing shell of the garage for our 4th bedroom, but once we got on site and properly assessed what we were working with it was going to be complicated to do this so we opted instead to rebuild all 3 external walls. With new foundations and the extra building work, this added 2 weeks to our schedule.

We were also hit by the Beast from the East just as we were about to start work, which delayed our concrete pour by a further week. Not an ideal start to the project, but something you sometimes can’t avoid!

Our newly created additional bedroom

The second element to slip was our budget. This was in part due to the extra work on the garage, but also came down to specifying some higher grade materials with our investor client, a few unforeseen extras that we added to the scope, and a learning curve from Mike understanding where the economies of scale exist on our larger projects (e.g. assuming that the cost per bathroom would be the same in a house where we were only installing 2, compared to a house where we installed 8 or 9).

Ground floor bedroom

Ultimately though, the project was still a great success. We rented all four rooms very quickly, two of them are £475 and the other two at £500, giving a total rental income of £1950.  We’ve written an article in the past about the costs of running a HMO, you can read it here.

The new kitchen

Interior Design

As you can see, we stuck with old faithful friend grey for this project, keeping the smaller kitchen light and bright, but embracing darker tones throughout the rest of the house.

We installed the same grey kitchen we had previously used in our Macclesfield project, but used a light marble effect laminate for the worktop and silver handles to make the overall effect much brighter. It makes it look like a totally different kitchen.

New kitchen

Throughout the house we used two main colours, Farrow & Ball “Worsted” for all the walls and woodwork in the bedrooms and lounge and  “Cornforth White” for the walls in the hallways.

Our tiles came from Wickes, with large grey tiles for the bathroom walls, and a white subway used for the kitchen.

Bathroom flooring was the same Victorian tile effect laminate we used in the Macclesfield project (if it aint broke, don’t fix it!) Kitchen and Hallway flooring was LVT (Moduleo Select- Midland Oak) and rest of the house had grey carpet.

New bathroom

As always, we used Fusion Furniture Solutions for the bedroom furniture, opting for the mahogany shade for a change and building in wardrobes in the smaller rooms utilising nooks and crannies.

Living room furniture and accessories came from Ikea.

New lounge

And thats it. All the tenants have moved in and they love it. Now, onto the next one!

 

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