Predicting the GDV for a HMO using an investment model valuation for lending purposes

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    Predicting the GDV for a HMO using an investment model valuation for lending purposes

    Hi. I am about to embark on the conversion of a house into a 6 room HMO. I have experience of this with 2 previous projects. Is there a way that I can accurately predict what the end value might be using an investment model approach to the valuation? I will be using a lender that uses this method for their valuations of HMO's as I understand the value is likely to be higher than the comparable method. Can anyone share with me how much higher this could be in comparison to the comparable method? Obviously the difficulty is valuing HMOs using the comparable method is that there are so few of them around and historical data is difficult for the property owner to access. Does anyone have the formula that the surveyors use in deciding the end value using the investment model?

    For this particular project the rental value for each room will be £700 per month equating to £4200 per month in total. All of the rooms will have en-suites. I will be adding another 50% floor space by adding a loft conversion and rear extension. I have secured the property for £400k in an un-modernised condition. The exact same property in good condition (with no loft conversion or extension) is being marketing at £500k in a nearby road. I would assume using the comparable method it would value at £600k with the additions and then add another £50k for being a HMO. However the area isn't great and I would be concerned about the 'ceiling' affect.

    Does anyone know of a service that can offer an end valuation for both models using drawings and an indicative specification? It would be of considerable benefit to have this resource available as I would then be able to choose which lender to go with based on the likelihood of the highest valuation. I find predicting the end valuation of HMO's fraught with anxiety and unpredictability. In the past I have had valuations ranging from £475k to 600k for the exact same property within months of each other. HMO conversion are very costly and it is important that I am able to re-coup as much of my initial investment as possible.

    Any advice would be much appreciated.

    #2
    How the property is valued:

    "As you probably know, letting a property to multiple occupants/households usually generates more than rental income than letting to a single household. Some lenders really get this concept and will use the ‘investment value’ when making a lending decision.

    Other lenders will only use surveyors that value property on a comparable basis, so if an HMO is located close to other HMOs, an investment value will be given. If, however, a property is the only HMO in the area, the valuation will be based on the price achieved if it were purchased as a single dwelling. This can severely restrict the amount that can be borrowed".

    The above information is copied from the mortgages for business website.

    Comment


      #3
      Thanks for this. Does anyone know the formula that a surveyor will apply if using an investment model valuation? Surely it must be in the public domain somewhere?

      I would be happy to pay for a service whereby a surveyor can give an indicative end value during the very early stages of planning the project. Is this service out there or do you just need to call a local surveying company and see if they offer this service. I have spoken to a few and it seems they want to visit the property and see the plans. I would like to get an idea of the end value when I am doing a development appraisal than spending thousands on drawings only to realise it might not stack up.

      Comment


        #4
        Property valuation depends on the location and supply and demand for HMOs. You should be asking the local surveyors where your property is located to give a valuation based on monthly gross rental income of £4200. If you took £600K as the top end value for your location and if 80% Mortgage loan for HMO were available , then you would be able to withdraw £480K after completion of renovations.

        Comment


          #5
          The two postings from Gordon999 should be heeded, they represent with clarity the approach adopted by lenders on an investment valuation basis. Currently there are perhaps no more than five lenders who value on an investment basis and if the property is to undergo major refurbishment this will reduce to four.

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