HMO deal analysis

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    HMO deal analysis

    Hi everyone,

    I've got a few single lets where we've used the BRRR strategy and am now venturing out to my first HMO - however I'm struggling to assess whether it is a good deal!

    We've agreed a purchase on 3 bed terrace in the NW and we are looking to convert it to a 5 bed all ensuite. We know there is demand in the area we are looking at and are quiet confident that the rooms will be filled.


    The 'return on money left in' the deal once refinanced is suitable for what we are after and gives a reasonable cashflow. However, the biggest stumbling block for me is that the purchase price + fees + refurbishment cost is a fair amount greater than what the property will be valued at once the works are complete.

    What this effectively means, if we were to sell the property after the works we will lose money.


    The intention is not to sell. However, when we analyse our single lets one of our exit options is that we don't lose money if we had to sell the property after completion of works. This exit option wouldn't exist here due to the larger refurb cost associated with the HMO.

    I just wanted people's views on this - is this fairly common for those that have created their own HMOs?

    Thanks

    Jitsy

    #2
    You should run your plans past the local HMO licensing team. They can be very helpful in pointing out issues. One that I can foresee is that with such a development its possible, even likely that the valuation office will be notified and they may decide to band each ensuite bedroom as a distinct welling meaning you will pay 5 lots of Council tax, not 1.

    Comment


      #3
      Originally posted by jitsy View Post
      Hi everyone,

      However, the biggest stumbling block for me is that the purchase price + fees + refurbishment cost is a fair amount greater than what the property will be valued at once the works are complete.
      How can you know what it would be worth in the future ?

      For an HMO business the important number is the return on your investment.
      Flipping properties is a different business but I can honestly say I've never spent more on a property than it's resale value.

      Comment

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