Getting the location right is probably the number 1 most important aspect to nail to ensure you have a successful HMO…..It impacts your ability to minimise voids, demand strong rents, secure strong capital growth, and minimise barriers during the development process.
So what should you look for in selecting the ideal location for an HMO? Here is the Nouveau formula…
- Distance to your target market:
- If your market is students then proximity to the university or college is critical (less than 10 mins walk is ideal)!
- If your market is professionals then ensure there are lots of larger businesses nearby with larger employee numbers. Distance to central business locations is valuable here or other industrial locations.
- Market size:
- Online research is great to find out employee numbers and student numbers in your respective area. Bigger is better. I like to speak to some agents and students to confirm their feedback….I will literally walk the areas and speak to people to hear their thoughts.
- Market Saturation:
- Check rooms for rent to compare searches for rooms vs rooms for let. This will show you the supply vs demand comparison.
- Most councils have a repository of HMO locations based on HMO licenses. Councils are legally required to share this information to you if requested as part of the ‘freedom of information act’……you need to literally quote those words as part of your request to them! This will show you the density of HMOs in specific areas. A few isn’t a bad thing as it shows it is a viable area. If every other house is an HMO it may be trouble though as it may mean it is tougher to get approval to convert a house to an HMO if there is article 4 in an already HMO dense area. It may also mean the market is over saturated.
- Room Rents Vs House Prices:
- Although your negotiation skills will impact the purchase price, it is useful to compare typical house prices to rents to assess comparative yields. Higher is better of course. Have a criteria in mind on what is good enough for you. At Nouveau, we won’t touch a property if we do not think we cannot attain at least a 30% ROI (minimum) after refinancing the property. That is our model, but a different number may be more appropriate for you!
- Article 4 or not to article 4:
- Article 4 is becoming much more common place. You have to get planning permission to convert to any HMO size. See our other post on what article 4 is and what it means for you)! Even without Article 4, planning is always required for 7bed+ (Sui Generis) but likely even more tricky in an Article 4 area. Confirming grandfather rights and negotiating a purchase subject to planning can be a tricky process so it is worthwhile getting help until you learn the requirements of that council.
- Is it a ‘NICE’ neighbourhood:
- We walk the areas many times to get a feel for specific streets (at various times of day). Sometimes how successful an HMO is can come down to the precise streets selected. You can have highly affluent areas located next door to some very rough areas so you want to make sure you are selecting the right side of the tracks. Getting this right can also heavily impact your post works revaluations.
- What is the upper limit of properties in that area:
- It is so critical to ensure you can recoup your funds when you remortgage your HMO. Sometimes properties may never sell above a certain amount so building a castle there will never be worthwhile. Critical to compare top end values close by.
- Future Development:
- If the local council is investing in the area it is an excellent sign that the value of the area is going to increase and your tenant demand will remain strong. We look at where those developments will occur and what public transport is available to those areas from where the HMO will be located.
- Other things to consider:
- How often properties become available
- Are the Properties suitable for conversion
- Is the location accessible for you (depending on how hands-on you want to be)
The above takes a long time to fully get your head around. This is why focus on specific target areas is so valuable to ensure you become an expert on the opportunities and risks of the area.
