Create a Cash-Flowing HMO in 4 Weeks
“You are so lucky to have found an excellent HMO power team! How do you turn a property around in 4 weeks?” is a question we hear a lot, whilst speaking with other property Investors.
There’s no luck involved though as we have followed a strategy which we have implemented at Inspired Equity, in finding the perfect investment area, interviewing and testing a now trusted HMO agent and power team.
Here are some of the steps we follow, so that you can also have a successful portfolio of HMO’s, with an agent and power team that you have the confidence in leaving to do all the hard work for you, in a very quick time frame?
Walk the Streets
We started off by walking/driving the streets of the area we wanted to invest in. That way we can see what letting agents board is up, on what properties and what type of properties they are letting. By walking the streets, you gauge the demographic of the type of people who live in the area, as well as gauge from the outside of he building the quality of the property – you may think this is silly, as you are only on the outside, however if there is excess rubbish outside, with either not enough bins or over flowing bins, a tatty garden or curtains hanging off their rails, you can gauge a lot from the type of letting agent who is managing the property.
Call the Agents
After researching the letting agent on line, I then call the agent with the most boards up on properties and explain that I am looking to invest in the area and buy a number of properties to let as HMO’s and that I am looking for a HMO specific agent. This is very important as many agents try to say they do HMO’s as well, however you need to find an agent which specialises in HMO properties. The agent may have single let properties as well on their books, however their speciality needs to be HMO’s. Some of the key questions we ask the agent are:
How many rooms do you have on your books? (Rather than how many properties do you have)
This will demonstrate straight away if they are a HMO specific agent and you want to hear a number ideally over 100 rooms as a minimum.
Do you charge a finder’s fee?
This is very important as the turnover of tenants in a HMO is higher than in a single BTL property. Even if the property is to the highest standard, the turnover can be higher, due to the typical demographic of tenant who rents a room, who in our case are young professionals, with a desirability to live within a short commute to London and surrounding Industrial towns, who tend to want more of a disposable income and social Integration.
We are finding more and more frequently, that agents are now offering 3 month tenancies, rather than the traditional 6 month AST’s, which it is why it is important to try and find an agent that do not charge a finder’s fee, or if they do, ensure it is a low finder’s fee, as potentially paying a finder’s fee 4 times a year can really take a nasty chunk out of your cash flow.
What is their average void rate?
Are the agents paid a commission on how quickly they turn around empty rooms/alternatively do they have key performance Indicators which are targeted around reducing room voids and increasing the number of clients looking for rooms.
What type of Checks do they perform on potential tenants?
Do they get a previous landlord reference, as well as an employer reference? If no previous rental history, do they contact a personal guarantor/ personal reference check, from a reputable person, that they can briefly research.
How do they advertise?
The best way to test this, is to go on to www.spareroom.co.uk and look for their adverts. We gauge again, the standard of property that they manage, how they dress the rooms to attract tenants, as well as the quality of the pictures they take and their competence in drawing in potential clients by the quality of their advert. Spare room is also a great way of assessing the agents, if you do not live locally or don’t have time initially to walk the streets.
I always want the agent to have a waiting list of clients, who are looking for rooms to let, so that it minimises voids. If the agent advertises and has a good presence, both on line and locally, they will be perceived to potential tenants, as a quality managing agent.
Do they have a power team of plumbers, Electricians, builders, handy men that they use regularly and that they can call on in an emergency?
Ideally, they need to have at least a handy man that they employ or contract, who is local and on call to attend any property quickly, to ensure that if a tenant calls, advising something is not working properly, it is dealt with quickly.
We want all tenants to feel safe and cared for, by someone who is able to arrive on site quickly to access the issue and get the quickest possible resolution, as an unhappy tenant is the last thing we want, as we do not want to jeopardise the harmony in a house, by 1 unhappy tenant complaining to another tenant.
Do you have any landlords on your books that we could speak to as a reference for your services?
We don’t necessarily take them up on the offer, however if they offer this information, it proves that they have confidence that their other clients will give them a good reference.
Face to face meeting
Once we have gathered the answers to these questions and feel confident that the agent could be an experienced HMO agent, we then organise a face to face meeting and ask the agent to take us to a couple of their properties.
This is really important for the following reasons:
You can gauge the type or properties that they manage, inside and out.
The type of tenants that they rent rooms to.
How clean they are kept. (Do they employ a weekly cleaner/weekly Gardener)
See the quality of the work from their power team.
We then ensure we go to their office, so that we can see their set up and see how they manage calls/tenants/workmen in a live environment.
Ask the agent to show you some examples of other HMO conversions they and their power team have managed, including material and labour costs for each conversion and time scales. This way you can compare these prices against other quotes you have for similar work and ensure that their work is competitive.
Ask to see other room rent examples, so that you can see in the flesh the room rates they are achieving.
We also ask them if they have a check list of items that are needed for a property to be up to HMO standard, this shows that they are organised and that they know what is involved in converting a property to a HMO and that they are aware of the legislations and standards required. This list also acts as a check list of items that are needed to be purchased, once they have the keys and demonstrates that they are organised and experienced.
Ask what their procedure is for purchasing items needed for their client’s properties, for example do they buy anything needed and agreed with us and then bill us and provide receipts for the purchases? This proves that they are financially stable and that we are not constantly having to make payments upfront for items/works needed. We also like to set expectations in saying that anything over a value of £50 has to be agreed by Inspired Equity, before the purchase is made, this stops them coming to us for everything, however allows us to keep on top of spend.
Viewings
Once we have seen a property we are serious about purchasing, we engage with the agent to see if one of their build team/handy men can come along with us on a viewing. This is great, as it proves to the agent you are serious and want to engage with them further.
On the viewing, we ask the tradesman’s opinion on the room sizes/what can be done with the property, to gauge their experience in the legislations and what is involved with converting the property to exceed HMO standards.
If you are further away from your investment area, you can ask them to visit the property on your behalf and video call you, so it is as if you were there, or if they are not able to do this, then they can visit and then call you to go through their findings. We have previously found that they have come up with ideas that we hadn’t necessarily thought, which have saved us money and floor space, which has really added value.
Going forward with the agent
Once we feel confident in the agents experience in HMO letting, client base, Marketing of properties, power team and local area knowledge, we agree to work with them and agree a plan for onboarding a property. We schedule a second viewing of the property, where we get the work men needed for the conversion to attend the property with us, so that they can quote for the works needed. They make a record of the materials needed at this point, so that as soon as we have a completion date, the parts are ordered in for works to start as soon as we have the keys.
Once the works commences, we engage with the work men and agent on a minimum of a weekly basis, to get a progress update, so that we can plan deliveries of white goods/furniture/final touches and accessories, so that as soon as the work is complete, the property can be dressed, marketed and viewings booked immediately. We then ensure that the agent has already started mentioning an exciting new property that they are bringing to the market, to their existing database of clients.
Wow Factor
All of our properties have brand new, modern furniture, flat screen TV’s, en suite bathrooms and feel homely and welcoming with well-dressed rooms, which stand out from the other rooms on the market.
To conclude...
We have a multi-million pound property portfolio, of which a large percentage of them are successful, high yielding HMO’s in the Home Counties around London. We have built up a successful portfolio of HMO’s and, because of the steps we take, our record time for fully tenanting a 6 bedroom HMO, with single tenancies, was 7 hours. Our agent had back to back viewings planned all day and because of the exceptional standard of our properties, they are rented out instantly and often exceed local market rents.
After a lot of research, we have specifically chosen the type of property that we go for, which are modern town houses, with 4 beds and 2 reception rooms, as these types of properties are easy to reconfigure. Our average turnaround from getting the keys, to the property being fully tenanted and the first month's rent in our Bank is 4 weeks, which includes adding en suite bathrooms to all rooms.
Turning properties around, to such a high standard, in such a short time frame of just 4 weeks, means that we dramatically improve the standard of living in our carefully chosen investment areas and maximise profits for our investment partners, so that we can move on to the next exciting project.
We are passionate about creating beautiful homes for our clients, whilst creating long term sustainable wealth for our investment partners.
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