The HMO market in the UK is approx 20 billion plus. This includes both Student HMOs and Professional HMOs. There are many examples of successful players in the HMO market such as Kexgill (http://kexgill.com/), Student Cribs (https://student-cribs.com/) and Megaclose (https://www.megaclose.com) that each have over 500 rooms plus. We have successfully completed on approx 45 HMO properties. In August we had 5 Social and Professional HMO under refurbishment. Our continued goal is to build & hold a portfolio of Professional HMOs along with our other property ventures. We have been selling the professional and social HMOs singly or in small groups. We are looking to create a synergy where the whole is greater than the sum of the parts. A portfolio of a minimum of 20 is worth much more than the individual properties. Actually over 20 Professional HMOs it becomes a business not just property. The beauty of Professional HMOs are they are high cash flowing. More so when Article 4 comes in, the values should increase dramatically. I know I said it…but the fact can not be repeated enough. While we are holding them, they are generating double digit returns & at some point in the future sell the complete portfolio. All the while the properties are managed in house. Management is the key. I received an interesting email from a London investor who has 2 professional HMOs in Manchester and has gone through 3 nightmare estate agents. He has voids and simply sleepless nights. He bought into the dream…not the reality!
Simply to highlight the power of this concept was a 5 bed HMO we did on the border of Walkden, Salford, Manchester. We purchased the property in mid Dec 2016. By the end of Feb 2017 the property was finished and started to be occupied March 2017. We held the fully tenanted property until Aug 2017. Our total cost of purchase, holding and refurbishment was approx 141,000. We sold the property for approx 175,000 plus generated rents of approx 11,000. This represented a profit of approx 44,000 over 8 months of approx 31% (48% yearly). This was cash on cash. The property could be geared at 60% and greater returns are generated. Our goal is to find the right colleague to work with to build a minimum portfolio of 20 Professional HMOs in Salford. We have been speaking to funds, family offices and various others. The simple rational is that Article 4 is coming at some point to Salford. This will only increase the values of Professional HMOs in Salford. Rents will go up as there will be less rooms to rent.
Thoughts…
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