Watch: Beyond the numbers: HMO valuation realities & how to protect your investment

Speaker (00:05.678)

This talk is about the future of HMOs and where we see them going in the next couple of years and also the true meaning of valuations when it comes to these kind of investments. My name is Ash Zuberi. I’m the founder of the largest HMO community on Facebook, currently at 67,000 members. I have a portfolio of about 40, 50 HMOs. I’ve done about 70 developments and we manage 250 tenants. I’m not the biggest.

but I’ve been going for about 17 years, so I’ve got a bit of experience. My good man, Edward, could you introduce yourself? Hello. Yeah, I’m Ed. I have a mortgage brokerage called Uplift Finance. We’re a small medium sized business, but pretty much all we do is HMOs. So last year, 85 %ish of the cases we did were HMOs. We’ve been going for about five years. I personally have a background in both retail and investment banking.

I priced mortgages, set the rates through the 2007 to 2008 crash and then worked on the investment side for a fund. We’re in a position where because we’re doing a lot of the same stuff, we have a bit of a perspective in terms of a lot of data on what is actually working with which lenders, which valuers, which isn’t and where the rumor mill kind of starts and finishes. All right. Nice. Alex?

So me, good afternoon. I’m Alex. run Babarus in Cambridge. We’re a real estate investment and management platform specializing in HMOs. I’ve got almost 20 years experience as a landlord myself in HMOs and also single lets, a member of the Zoopla Lettings Advisory Board. And we’re involved through the business right from sourcing, acquisition, financing, design, build, and then obviously operations thereafter. Nice. And my good man, Richard.

Hi everyone, Richard. So I am HMOX and over many years I’ve been specializing in valuing appraising, selling HMOs across the country. So I’ve driven and visited thousands of them, many of your own HMOs. In this particular market, a lot of this that we’re going talk about on the panel is very much my day job, consulting, advising. It’s no longer sell a HMO. It’s…

Speaker (02:22.625)

prepare, consult, go through it properly. So that’s HMOX where we changed it. yeah, looking forward to get us stuck into the panel. Great. That’s a great line up there. So here we go. Is there a science and art to valuations? I think there is. What do you think? Well, I spoke to the head of valuations at Paragon a couple of months ago, and his first thing in the meeting was, well, there’s as much art as science to it. So I think I left the meeting less.

less educated than I went in, to be honest. HMOs, you know, people don’t generally build HMOs to sell them. They build them for cash flow. They don’t change hands very often, as we’ve all found out when we’re looking for comparables. So I suppose art, judgment as much as art. And, you know, it may be fairly clear to look at where HMO values are in a given area over the next sort of two years.

but it might not be that easy in the next downturn, which may be, say, six from now. Okay. Alex? Yeah, I think from an operational perspective, obviously, our main focus is sort pushing the top line of rental income and trying to retain as much of that and not lose any through sort of minimum maintenance and reducing void periods. Richard? Well, if I said that it wasn’t an art of the science, I’d be out of a job.

There’s a few companies that have kind of tried to specialise in value in selling HMOs on a national scale. And the conversation I’ve had with the owners of those companies over the years has always been, you can’t put an algorithm on it and you can’t go too far. You can go so far with PropTech, but at the end of the day, you need to have local knowledge. You need to have local comps and you’ve got to really be, you you’ve got to draw out and go into the art and actually the detail of these valuations to be accurate, which is…

I suppose, is my day job. So you can only go so far with all of the, know, kind of everything you can figure out remotely. I think on any given day, can go down a rabbit hole, lose three, four hours, even if I’m doing 100 valuations a month, just every now and, you know, every 10 will take me three, four hours to even get anywhere near. And that is using every single platform, every single bit of skill and every black book I’ve got just to get anywhere near something that’s going to be accurate. So, yeah, it’s as confusing as ever.

Speaker (04:45.471)

It’s such a great area, right? Evaluations, you could be in one town and get completely screwed and then go to another place and you win. And I’m sure many of you have got your positive valuation. Has anyone been downvalued? There you go. So you know what I’m saying, yeah? I’m with you there. So let’s look at the real valuations and the hype, right? To Edward, because you’re the expert, right? Are lenders…

becoming more conservative with the way they’re looking at these deals? At the moment, no, it’s going the other way. And the reason is over the past five years, we’ve had a couple of huge bumps in the road. have COVID and then we had trust. For the mortgage industry, those bumps were huge. was after trust, our volumes internally dropped probably 75 % for about six months, which is what you would expect in late 2008.

after the financial crisis. But because that didn’t impact all industries and all areas, it wasn’t necessarily reported as dramatic as it was. Because of that and because lenders didn’t know there’s something from their elbow during COVID, they’re really hungry now. It’s the first time in the past five years where they’ve got money they want to lend and it doesn’t feel massively risky. So we’ve seen a couple of lenders who are your cheaper lot.

your Kent reliances, example, your 5.5 per cent, 5 per cent guys move on to the vast panel earlier this year. It used to be that if you want a really high valuation, you go to the vast panel, you use a commercial lender who might charge you 6.5 per cent, they don’t ask too many questions. We’re starting to see competition around those areas from some of the cheaper lenders purely because they’re very hungry. That doesn’t necessarily mean it will last forever.

They’ll be, it will open, it will close, it will flex. But actually, I think over the next two years, there’s going to be more competition from lenders. However, it’s always worth bearing in mind, there’s the value that the bank is putting on the property, and however complicated we get, whatever valuation methods and yields we’re talking about, you as a developer, as an investor, need to bear in mind, what could I actually sell this for if I needed to in a pinch?

Speaker (07:05.708)

So, if you’re going for a great, I’ve got a massive high value, I’m at 75 % of a commercial value with the right lender and the right value or et cetera, that’s great, but bear in mind, you might not be able to sell it for that, and if there’s a bit of a downturn, you might not be able to refinance it. It’s kind of the equivalent of a high LTV mortgage, in other words, it’s just high leverage. So, as long as you’re being informed about it, it’s all good. If it’s trying to use a fairly basic income multiplier and…

raise investment on that basis and assuming it’s always going to be like that, then that’s where people get into trouble and often go to guys like Richard to sell sometimes. Yeah, I agree. So lenders you think are becoming a bit. Yeah, to answer your actual question. Yeah, I they’re opening up. Okay, Alex, you’ve done some amazing stuff with your HMOs, the management, the finish, everything else. How important is it to have that locked in? you’re not only you’ve got the voids dealt with.

the way you’ve set the whole thing up, the management, et cetera, to the end over value, you know, the end value when obviously presenting it to a lender. How big is it? So, yeah, I think we put quite a lot of focus on the level of finish on the end product. I think not only from an aesthetics point of view, but how they’re used. I think part of the business is focused on building harmonious houses where the people stay longer. And if they stay longer, especially with Renters’ Rights Bill around the corner, we can have longevity of tenants.

even with the removal of fixed term tenancies, so you’ve got a more sustained income. That then tends to translate into reduced voids, so minimum maintenance as well. yeah, as a result of that, the income profile is higher, so you’re able to get higher valuations. Have you had good valuers come out and give you good positive valuations based on that? Would they come in and go, wow, look at this?

Absolutely. And I think there’s actually bit of added value that we get as a lot of our brands. So the stuff that we’re doing internally, but also the stuff that we’re doing with investors, there’s almost a sort halo effect with working with us. agree. I think it’s really important for the future. Richard, you’re on the ground. What are the most common misconceptions sellers have when they’re trying to put their… These guys covered it quite well. There used to be… One of the quotes…

Speaker (09:23.423)

Just as a lot of information, a lot of words being said, but good HMOs used to sell for great money and now great HMOs sell for good money. That’s one of the things really to think about. just cuts straight through all of the noise and everything. So before, previously, were certain get out of jail cards for landlords. So prior cheap lending, pre-Liz Trust, pre-COVID, you could sell a C4 value. So there’s the house, it’s got a business value. And we were getting top ups. So we were selling

Okay, it’s going to mortgage at that level, but you’ve got to pay an extra Mr. So-and-so from Hong Kong or Mr. So-and-so from London. You’re to pay an extra 25, 30K top-up cash to get to the C4 value. And it was selling them all day long. Then you had changes with lending. As Ed’s talked about, you had a list trust. had certain, know, cost of living, et cetera, squeezes. And to get that C4 value now, it’s got to be an absolute perfectly well-prepared HMO to come out the other end.

The misconception now is that what you’ve refinanced that is probably not necessarily what you’re to sell for. And preparing that, the reason why it’s only coming out to the wash now is because there was a huge rent increase. So yields have drifted and sales values have flopped the other side of commercial valuations in a lot of places, not everywhere, but a lot of places. So the yield goes up from a say 10 % gross to a 12, just to get that investor strike point. But because the rents have done so well over that three, four, five year period,

the rents have been the get out of jail card. So they’ve not realized that actually their investment value has been shrinking because the rent roll has been ballooning. So it’s protected it. But now rents are stabilizing and flatlining. The sort of tides going out and people thinking, shit, now I’m a sweet generous commercial, but I’m not going to get that again. So they can’t refinance or they come to me. And I mean, we had one today, sorry, this week, which it’s been leveraged at a million.

the sales value now is around 800. And I had to make cash offer from someone at 800, which is top top of the market right now, can’t afford to take it. Can’t afford to take it with redemption penalty. So they’ve got 75 % leverage. So 750, redemption penalties, selling fees, bit of JV money. It owes them 850. So, sorry to… No, that’s fine. But I think to say something positive,

Speaker (11:41.971)

a high commercial valuation can make sense. You’re out the net profit and putting it into a value. Great. Theory is good. There’s a lot of assumptions in it that can move around. It’s a really useful tool for a business that is growing and you’re in that expansionary phase. Great. It’s good idea to use leverage. That’s what it’s there for. It’s just

being educated about it and not really, not taking information from places where people will give you a blunt outlook of that. I’ve got clients who are in that phase at the moment and they’re leveraging up and they understand the risks and they’ve got a plan B, C and D. It goes to what Alex was saying. if you’re creating a HMO to solve the local housing need and you know exactly that sustainability, that demand, you know where that rent’s coming from and you know the gradual increases in rent, a lot of people, the risk of over leveraging at that level is,

you’re just getting a vessel to execute a BRR. You’re forgetting about tenants, you’re forgetting about longevity, employment, sustainability. You’re just going, oh, wow, that house could go from a three to a seven, and I can BRR myself out of it. But you’ve completely not thought about the longevity of that because it’s linked to the rent and the sustainability. You get the local experts that are more protected leveraging commercially because it’s a 10-year process. So you might dip in negative equity for a couple of years, but you’re holding and…

Well, it becomes relevant if you start missing your mortgage payments. Yeah. You’re going to sell. if your plan is to hold it for a while and you’ve got your risk mitigated, maybe you’ve got some loss of rent cover, et cetera, so that you’re not in a position where you’re not able to make those cash flows, then that’s OK. And maybe there’s over if you’ve got to say a 10 year time span where there’s a bit of risk on the value, you’re not, you you may or may not be able to sell it. You may or may not be able to refinance, but you’re on a five year fix. You’re up with a lender who can.

roll you onto a new five-year fix, that’s okay. And that’s one of the things within mortgages, there’s an obsession about loan to value because repossessing sucks for lenders, they hate it and they lose loads of money doing it. But loan to value is only relevant when you’re in default. I think the biggest thing on that that I see, which is you said it’s a stable, your clients coming in, it’s a stable tenant type. It’s a 10-year, you’re buying cash flow for over the long term.

Speaker (13:59.251)

A lot of the people I see, they’re rushing into JV partnerships and they’re getting into bed with people quickly because they can raise private money off you. I know the property, I’m a local expert, give me a little bit of money. Let’s open up a limited company. Shit happens after a couple of, and you need to exit out because the relationship’s gone sour or something’s happened with that business plan. They’re the ones. So I think the due diligence, so long as you’ve got, you know, sustainability over your overall business, these things aren’t going to be a major issue. Yeah. How many people are here on the?

leverage train, as I call it. That’s your whole business model. Just be careful, right? Don’t over leverage. Listen to what these guys are saying. I remember, I think 15 years ago, it was all about how much you had saved and that was going to, know, pension. I’ve got a hundred grand or whatever. I’ll go buy an HMO and that’s it. You know, maybe two or three. Now everybody just wants to refinance, refinance, refinance. So just be careful. Thank you for that. Have we reached the point where value is…

understand HMOs and, or are we still educating surveyors currently, Alex? Good question. I was just looking at you. So we’ve just gone through about 30 valuations at the moment for this. And at the start of the process was a lot different to how it ended, but yeah, massive, we’re doing a lot of work around educating, not just surveying. What did you do? Give us some tips that you’ve done. We’re not trying to give too much away. There’s valuation packs, but also just proofs in the pudding, right? So if you can demonstrate case study and sort

evidence what you’re preaching, then you’re there. I had croissants, had coffee, I had the whole spread and I still got down value. So it doesn’t work all the time. What do you have to say? Yeah, exactly. It’s the age of… So we’ve pivoted massively. My old company, The Property Advantage, was just rack them and stack them, sell HMOs, but now it’s consultancy led essentially. A lot of what we do is preparing people for a refinance. We do a lot of GDV appraisals for developments purely because it’s…

The way we call these appraisals are non-sale valuations for yourselves to get a better commercial lending. We class them as almost like a pre-app for planning. So you’re going into it, you’ve got an independent specialist that’s provided comps, market analysis, data, and preparing it. Or if you’re experienced enough to provide your own valuation pack without it coming across that you’re telling them how to do their job. But hard factual comps really, really help.

Speaker (16:24.616)

It’s the age of preparation, is the key on the run up to these refinances in particular. as you’re going through, one of the things I see a lot of the time is it’s quite a long period of time to go through planning on a large HMO, then go through building it. And you might have had a development finance GDV come in, it could be two and a half years earlier. So now you’ve, you you could be way off by the time you come and go on your term loan and things like that. it’s just being ahead of it, being ahead of the game and preparing really at the moment. Yeah.

Edward? Well, just to actually go off the back of the last comment Richard made, with the valuing a property as an investment based on an investment yield, small changes in yield can lead to a very large change in value. If you’ve got a six-month planning cycle that turns into a 12-month, and then you’ve got six-month bill that turns into nine months, and then Liz Trust comes back to life,

After Truss, HMO yields probably up 1 % over a year. Yeah, and cost of living as well on top of that as well. Yes, yes. And they went up before rents went up. Rent’s well again. So, like I had a client, Greater London, who had a mid-sized property, lost, I think he lost about 500,000 in value. We had it valued five months prior and then five months hence, mistrust.

and the temptation is to blame the bank and nobody likes them, they? So, fair enough, easy. But, yeah, there’s room to move. But I think from a financial planning perspective, as a business, it’s just about exposure. It’s just about taking an educated approach to the portfolio. And if you’re, know, a smaller developer, you’re doing one property at a time, that

that risk mitigation needs to have a lot more emphasis on it. If you’re a development company that’s got four on the go at any one time, you can manage that. I don’t want to be super negative. It’s a really, really valuable tool and the logic of it makes a lot of sense. it’s, know, whatever conversations we get into, it’s about who will buy it, what would they pay for it? It doesn’t matter on the method. Who would you sell it to if you could? And if you can’t picture yourself selling it to somebody for that.

Speaker (18:49.704)

then, but you can get a good mortgage broker who can get your value up here. All right, that’s fine, but just keep that in mind. We’ve got one of the things that we’ve done, not for a while actually, but it’s always ongoing. I say not for a while. The transaction we’re involved in at the moment is actually exactly this case. Lots of developers that I know are building portfolios quite aggressively, 20, 30, 40 HMOs.

And when I get a particular buyer that wants something in their patch, I’ll phone them up and say, now’s your chance to get a few comps because I’m going to get you a good sole price. Rather than fire selling or having to rush one or the JV partner involved in that particular property decides they want money because their son’s gone to prison or something like that. They take, you know, take the view that I know what their rolling stock is and I’ll ring them up and say, right, you’re going to get this 9 % yield valuation from this cash buyer, sell it and create your own comp to then…

leverage off for the next cycle. you’ve seen that firsthand. the problem is the sold comps that are coming through now, they’re not just the crap HMOs that flooding at the bottom of the market, the student stuff and the tired landlords that’s coming out the bottom that normally around bricks and mortar price. So there’s always a difference between the really nice created, sweet, generous, lovely boutique. Cause there’s no like for like sold comps. But since the stamp duty surcharge last October,

prices have taken a hit on HMOs. So those are hitting land registry that next cycle coming round, it’s going to be even harder to get a like for like sold comp. networking and speaking to developers and speaking and taking anecdotal data as much as possible and working with brokers that are in this game daily is essential. Yeah. A percent. was with a, I was at a talk last week and I was on the panel there and there was a broker there and he put me, he made me realize one thing.

because I hate lenders and I hate the banks because they do all these down valuations and they give us these rubbish excuses of why they’re down valuing. But he said, put yourself in their shoes. They want to get their money back if something happens to you and they need to sell the property. So you can stand here and go, yeah, my HMO makes 80 % above market rates on my rooms. But they’re going to look at that and say, well, if I put it back on the market, it’s actually going to get 60 % less. And no matter how much you argue,

Speaker (21:07.555)

or give them cupcakes, they’re not going to give you that valuation. You’ve on, I was going to mention it, but Ed was talking there, but one of the things with the down valuation, which is a bit of a stretch a lot of the time, because it’s just not at your expectation a lot of the time, but whatever that valuation comes back under what you’re hoping for, a lot of the challenges at the moment I’ve seen is based on the viability of rents. So they’re taking off the ERV and they’re slashing that down rather than actually changing the yield.

of the local expectation, they’re happy, that’s quite settled. I you’ll see the same, but they’re challenging the rent roll quite Like in my area, I don’t know if any of you agree, the average rate spare them is 600. And we’re charging 750, 800, 900, even a thousand, right? Will the lender look at that? No. Even if I give them 10 years of data, no, not realistic. So be very careful. Does that make sense, guys? So the next one is…

tactics and investor reality, right? Alex, what are the most overlooked aspects of an HMO that can either enhance or destroy evaluation? You know this deeply. I know you don’t want to give away too much of your… Has anyone seen these HMOs, by the way? Their levels, there’s levels to this game. Go on. Yeah, not giving too much away. I was trying to get it out of him. Overlooked, I think…

We’ve put a lot of effort in the design of these properties and it’s easy to say, and Instagram makes everything look a certain way, but making these properties as user-friendly as possible and really understanding how these are going to be used by renters, not just in the short term, but into the long term. I think that flexibility and making sure that they are attractive to as broader range of the tenant demographic as you can is going to help them. Do you see that becoming more common as the years go?

on commoners in everyone else raising their standards. And becoming more like your model because that’s the only way. Yeah, I do. I mean, with my investor hat off, I think it’s a great, it’s a great thing. We’re improving the standard of rented accommodation for young professionals. I think it’s a good thing. Yeah, I agree. Richard.

Speaker (23:24.112)

Are we seeing a rise in strategic pre-sale packaging? you know, are they trying to manipulate the market base? I know we touched on this already. We’re doing long-term exit planning service for, I mean, funny enough, three years ago when I did the talk in the other room about it was you going to, because I’ve really looked at my slides, it was called, you are going to sell your HMO one day, so prepare in advance. And that is kind of even more relevant now. Everybody that is

You don’t know when that cycle is going to come. So the earlier that you prepare, the worse that’s going to happen if you prepare a business, isn’t it? So it’s a house with a business. It’s a business. The worst that’s going to happen is you’re going to have a better run, better optimized, or top of your running costs on top of your P &L. So you’re going to make more profit in the short term. But preparing over the long term for a quality sale to use another cheesy little, because I these conversations every single day. So try and just capture it.

Buyers want a deal at the moment when they’re buying HMOs. Most buyers are looking for a deal unless the HMO is ideal. And that again summarizes where the market’s at. with a little bit of forward planning, you can cater your HMO to really suit a buyer type. As we’ve seen, you can nail down exactly, well, who is it? Is it an investment fund? Is it someone from London? It’s buying for their university tenant, son, whatever that HMO buyer is.

You can really cater it to make it ideal for them and you’ll still get really good money. We know about brokering and really structuring deals to make it really, really perfect for them. Otherwise you’re to get short changed and they’re going to expect a deal. And that’s where the market’s at. it’s all about prep in advance. And yeah, obviously there’s an urgency needed for lots of people. I need to my HMO tomorrow. So there are exit routes where you can just sell out and get a result. But a panel like this is

prepare now to sell in 10 years. know, Edward, from a lender’s and a broker’s perspective, know, six bedroom HMOs didn’t get the commercial valuations because they didn’t have planning permission. We’re seeing now that there’s products out there that are giving. Now, if you have a six bedroom HMO and you get that commercial valuation from one of these hybrid products and it’s at the top end.

Speaker (25:47.4)

How are you going to sell that? Are you going to get that value? How do the lenders look at that? I mean, how are you going to sell it? That’s a developer problem. What the bank has valued it at is a bank’s problem. And from 2015 to 2020, there was a bunch of developers, probably several in this room, that came up and had their growth spurt. There was a bit of a reality check at lenders between 2020 and 2022.

where, you know, there was issues in the finance market and those, suddenly, those deals quickly fell over and there were a few more repossessions, particularly of those sorts of HMOs. it’s debt is just a tool. It’s leverage. It gets you somewhere quicker. But if a high valuation

means high leverage using, just make sure you’re able to kind of keep the train on the tracks, is all I would say. It’s just a tool. So there’s a broader context of where you’re at in your portfolio. I haven’t answered your question, but I don’t think Are there any new products that would be interesting for everyone Well, so there isn’t new products, but there’s a lot of movement around the edges.

So lenders like to change the meaning of words. so you may call a certain lender last year and they would say, yes, you will get an investment valuation on, we will instruct an investment valuation on your non-article four or five bed. But they know that when it comes back, it says investment valuation, but it looks and feels a lot like a bricks and mortar value. This year, they’re very hungry. They’ve got a lot of money and there’s not a huge amount of risk in the financial markets.

There are a couple of lenders who have moved the goalposts on their valuation. It is how they send the instruction across to the valuer, how many Ts and Cs they put in there, and what restrictions which you don’t usually get to see. That is where the subtlety comes. Luckily, we in a position where we are doing a bunch of them so we can feel. For example, Kent Reliance have opened up a lot this year. Knowing Kent, they might then go the other way towards the end of the year once they realize they don’t quite understand.

Speaker (28:08.388)

Some of the elements. Who’s your best lender at the moment? LendCope, my favorite right now because they’re cheap and they’re given decent commercial valves and the service is brilliant. Good. Alex, have you had any down valuations? No, actually quite lot. We’ve done quite well. Totally positive. You must have seen some ludicrous. Yeah, well, I think the feedback there is, you know, it gets easier if you’ve got a brand that’s trusted by the lender in a relationship and you’ve actually got a…

You talked about the development phase, so building that design led, developing them to suit the tenant base, but it goes down to management as well, really looking after this product, but then building a brand around that, the people that I know who have created that are not the ones moaning about either over leveraging because they’re very, very secure in their numbers, or they’re not moaning about down valuations. It’s possibly pushing out the mum and dad landlord, the casual landlord or somebody that’s just going to develop a couple because…

they’re more at risk of this volatile or, you the ones that I see mainly that have had down valuations are a couple from London who have worked with a deal packager in Portsmouth, just given them a load of money for a package complete deal, 50 grand upfront for a whole, you process. Here’s your rent, here’s your numbers. And I mean, I spoke to one recently and he pulled out of two more deals because he just realized that…

the GDV was being manipulated on the deal, on the package deal by this guy just being a, you know, a saucer essentially and putting it, putting it, cause for those guys to make their business model stack, they have to do a full money out BRR to people that they’ve only got that one pot of money. They can’t leave money in. So I see they’re the most risk cause they’re going into a brand new area, trusting, you know, an outsourced product and outsourced management, outsourced bill team. And if you, I quite often nail into those deal, deal sheets and the room rates are.

Oh, look, you’re going to get 850 for these rooms studio style. I know the markets regressed to 775. So things like that. Professionals working in area regularly and creating a brand are the most protected. What’s one of the reasons, worst reason or dumbest reasons you’ve heard of evaluation going down? Well, to be honest with you, a lot of them are to do with mean to size spaces, things like that. So, you know, if a lender wants to go in and or sorry, a value wants to go in, they can knock off.

Speaker (30:29.314)

the door swinging area isn’t usable space. There are very much focusing on the means standards. But also one thing that catches a lot of people out is changing of tenant type. So putting a rent to rent contract in, putting a supported living lease in halfway through a term, changing and not knowing that you’re actually breaching the terms of your mortgage coming in then for a reval or halfway through a development when you’ve got a GDV appraisal book and value with development finance, but halfway through.

you sign up with a social housing provider, all of a sudden you’re at 60 % of bricks and mortar when you were going to be 75 % commercially. Things like that, they’re the common things that crop up. Yeah, gone. Really obvious, small rooms all the time. It shouldn’t be anywhere near six and a half square meters. We had a case recently where the client was kicking off a bit because they’d not measured the alcoves.

He was coming out at 6.8 meters. Well, you shouldn’t be anywhere near that. Like I wouldn’t want to live in that room. I’ve lived in HMOs in London, had a good time. But like, would you want to live there? And if they were anywhere close to that, it’s not probably not going to be super valuable. Local authorities are switching to 7.5 quite regularly to drop the heart. There’s been a steady increase over the years. had a bad valuation, which I’ll share with you. We did a 34 bed HMO value came out.

And we showed him that our occupancy rates were like at 95, 97%. And he comes back and he goes, because it’s such a large HMO, I think you’re going to have a much higher void rate. So I’m taking 15 % off your valuation. That was just one point. Do they do that? Because most do. Yeah, they do. Because you develop and manage. You’re in the category where yours won’t. But most, most…

large 13, 14, 15, when it’s all off one corridor, they do carry more voids because most of them are badly managed. So it’s how do you get them to see that your product’s different? Which is the art. Do you think that the era of golden HMOs is coming or it’s already passed? Alex? Coming or past? Easy to say, but I’d say it’s evolving. I think…

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long gone are the days of this rising damp style bed sits. I think we’re definitely seeing a sort more generalized switch to more boutique standard. I don’t want to say it, but luxury HMOs. So no, I think it’s evolving. And I think the tenant type is changing as well. We’re seeing a lot of people changing their mindset that it’s not necessarily a necessity purchase now. It’s actually quite an aspirational product, especially the work that we’re doing around community and so on, that people can afford to live in self-contained.

accommodation, but are choosing to live in shared housing with people that are like them, shared interests. And it’s actually a, it can be a very nice, nice way to live. absolutely. Before we go, because we’ve got a couple of minutes for questions, think. Three top tips for these guys out here on value, how to get the right valuation. Any, any three tips? Well, I’ll well, I’ll re-say the quotes I’m saying all the time.

prepare. We’re in the age of consultancy and preparation. So pay that consultant for their specialism. Go to the experts because previously to develop and create these properties, you could lose a couple of percent on the purchase price, the development, the end-val, the end-rent roll. You could drop a little bit and still net cashflow a thousand pound a month. Now you’ve got to be absolutely on point on every single component of these developments to make them work. I’d say, yeah, and going back to that.

Good HMOs used to sell for great money, great HMOs for good money, that’s one to take home. at the moment, the investors, as you are, looking for a deal or something ideal. just those two things, I’m driving those two messages at the moment. Edward, three tips from a lender, broker. Thank you for the prompts. I was just thinking about what a sweaty mortgage broker I am right now. Nothing less, nothing less trustworthy.

Okay, three tips. From a mortgage perspective, use somebody as a broker, use somebody who is doing HMOs a lot and isn’t telling you what you want to hear. They need to pick a lender, and both the lender’s instructions and the valuation panel won’t get in the way. You can mitigate the first two risks, and then it just down to the valuer, and that up to you to find the right guy. That is tip number one. Tip number

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Two is don’t, obviously, you’ve got to be optimistic if you want to take the risk and do it if you’re entrepreneurial person, but scientific methods, try and prove yourself wrong, don’t try and prove yourself right. And third tip, and then if you can’t prove yourself wrong or you can only prove yourself wrong a bit, then you’re probably onto a winner. And third tip is just stress test and just take a portfolio perspective, risk manage it, like with your sourcing agents who are taking somebody who’s got 500 grand in cash and they’re putting it all into one project.

That is brutal if there’s assumptions in their commercial value. It’s not so much if you’re doing a couple of years and you’ve stress-tested it with fairly conservative numbers that might have a 20 % swing in value. That’s okay. And fourth tip, just be aware of the risk you’re taking. If you’re highly leveraging, there’s nothing wrong with that. Just be aware of it and maybe not as a long-term plan. Alex? Yeah, from a developer’s perspective and…

and an operator as well. Starting at the beginning, buy right. I think you make your money going into these properties, so don’t overpay with the assumption that you can make it in the back end. I would then say design right. Design with intention. Really consider what these spaces are and who your tenant type is. And then three, mentioned earlier, valuation packs, evidence, everything. And if you can use your own products as the case study, think that’s a win. That’s great. How many of you are doing professional HMOs?

How many doing DSS or supported living or anything like that? One guy, two, three. Okay.

Both. Yeah. Okay. That’s good. That’s interesting, right? So when Alex touched on, you know, he sees the market going forward with, you know, quality, I don’t think, you know, you can still give quality to supported living. Okay, you’re not going to spend that much, but these guys are more vulnerable. So surely you should pay a little bit extra for a nice bed, right? You can still give that quality. I think that’s my tip. The days of the, you know, I remember my uncle’s HMO, he just threw a mattress in there and said, Hey, look at this room.

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crazy, right? I think those days are gone. And you can add value and give good quality even for a budget cost. Right? Does that make sense? Yeah, we’ve run out of time. Ladies and gentlemen, please make some noise for my lovely panel.