HMO Projects: How Much Will Your Investor Leave In The Deal?

Turning a property into a HMO (House Of Multiple Occupation) can be a wise idea, but many don’t know how to accurately cost the project, and more importantly how to present these numbers to investors. In this episode, David walks you through each step of a hypothetical project, allowing you get a feel for how each process works, and giving you a much better idea of the costs and practices you should be looking out for, and by the end of the episode you’ll have a guide on how to answer your investor’s most important questions. KEY TAKEAWAYS Investors always want to know how much of their capital is going to be left in the project, and more importantly what the possibility is of them getting some money back out of it. It’s important to remember VAT when it comes to your refurbishment costs. If you are converting a house to a HMO, you are creating “new” accommodation in accordance with VAT regulation 708. VAT on normal purchases is 20%. If you convert a property into a HMO, the VAT rate, under regulation 708, for the builder’s supplies and materials, is just 5%. This is a significant saving! Make sure you have your sets of drawings from your architect. The first is an overview of the plan before and after with correct room sizes. Bedrooms should be a minimum of ten square feet plus en suite.  A Commercial Revaluation - Will a commercial value a property and lend you money based on the income from the rent. This is incredibly hard to judge and is never guaranteed. Lenders usually judge this revaluation on three numbers: Yield driven valuation based on the rent roll. Lenders use the gross figure minus 20%. A bricks and mortar valuation based on what the value of the house is as a standalone property. The third number they come up with is somewhere between these two values. This is generally the number offered by commercial lenders.   BEST MOMENTS ‘Did your investor know that? Did you know that? You can guide your investor!’ ‘Speak to your local authority. They will guide you on room sizes’ ‘The best job that you can do for your investor, is to do the job with cash. Cash is king’ ‘If you’re going to source HMOs, you need to know this stuff’ ‘Everything after two years, the profit is profit' VALUABLE RESOURCES Property Sourcing Profits Podcast https://www.progressiveproperty.co.uk/ https://unlimited-success.co.uk/ https://www.facebook.com/groups/progressivepropertycommunity/   ABOUT THE HOST David is a property expert with over 25 years’ experience and his own portfolio of 26 units. His current rent roll is in excess of £10k per month. He is also a partner in a Deal Sourcing and Packaging business in the North West of England and has sourced over 250 properties for investors since 2004. In recent years he has, by necessity, had to develop an expertise in LHA strategies. This area is increasingly becoming a niche for him, and he enjoys empowering other landlords by sharing the knowledge he has gained. The ultimate purpose when sourcing properties in this sector for investors is to minimise risk while maximising profit. He has had to find answers to the challenges of Tenant Find, Management, ensuring rents are paid and the transition to Universal Credit. These are strategies he uses in his own business and also on behalf of investors. His investor clients regularly achieve annual gross yields of over 20% with high occupancy rates and voids resolved, sometimes within hours.   CONTACT METHOD https://www.linkedin.com/in/david-siegler-7b126316/ https://www.facebook.com/DavidSieglerInvestments/