Over the past four weeks we’ve been considering how to find investment properties and this week, we’re going to give some thought to HMOs. So, where could we find this type of property?
Unless we’re looking to follow a sophisticated model whereby we convert an old office building, pub or even something like a nursing home into an HMO, then it’s quite likely that our HMO will be similar – physically, at least – to a buy to let. In other words, a property such as a 3-bed terraced or semi-detached house. With this in mind, it’s likely that we’ll find our property in the same way as we would find a buy to let, and that’s through an estate agent.
Sophisticated conversions such as those above are definitely suited to the more seasoned investor, so if you are just starting out, then it’s likely that you’ll be looking at converting a standard house.
At this stage, you may be wondering why I’m talking about converting a property rather than just sourcing a property that has already been converted into an HMO or a property that has been purposely-built as an HMO. Perhaps because you don’t have the time, the power team or the inclination to manage a project of this scale.
Well, aside from the fact that these properties are relatively hard to come by, the reality is that if you want to make a decent profit from your property, then you will want to do the conversion.
Much of the profit on HMOs is made on the development, and whilst this may only be “profit on paper”, you can greatly increase the equity and therefore your wealth by undertaking the conversion.
So, where will you find your properties to convert into HMOs? We’ll look at this in more detail next week, but essentially, where you find your properties will depend on the type of properties you are looking for.
To give an example; when I began to consider HMOs, I made the firm decision to pursue a particular type of property. I’d decided to find 3-bed terraces or 3-bed semis but I wanted a certain type of layout in order to create a specific configuration.
I wanted to find a property that would enable me to have two bedrooms on the ground floor and three on the upper floor (preferably all en suite), and a large kitchen. I wanted a hallway with a side passage that would link all the rooms together. My thinking was that a configuration like this would allow me to have a 5-bed HMO.
However, the area I had chosen proved impossible to find properties that would work with this configuration. (Rather surprising as the neighbouring town that was not even a dozen miles away had plenty).
So, not every area necessarily has the type of property that you are looking for, and not every property that you’re going to find (even if it is the right size), will have the right physical configuration to allow you to do what you want to do.
Unless of course, you’re prepared to undertake some fairly major adaptations.
Quite often, it’s the case that building extensions WILL be required, and more often than not, this is still the case even with simple house conversions. When it comes to converting say, 3-bed terraces or semis, kitchens are often too small for the purposes of shared accommodation, and sometimes the only way to overcome this challenge is to extend the property – unless you’re happy to make up the space using an existing room. (Not advisable, as this would mean you miss out on an extra bedroom).
What many investors do when faced with this scenario is to build a conservatory on the back of the property. One of the great things about putting in a conservatory is that if it’s of the right size, then you wouldn’t need planning consent.
Of course, you would need to speak to the Local Council, but with permitted development and assuming you conform to building regulations etc., then you wouldn’t have to complete a planning application. By going down this route you can speed up the process – and it actually results much simpler.
Next week, we’ll think about this in more detail and will consider how to deal with estate agents when we’re looking for houses to convert into HMOs.
Peter Jones B.Sc FRICS
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