Watch: How to attract the best HMO tenants

Neil Walton (00:10.157)

First of all, hello and thank you for having me and coming to watch me. And thanks to Van and the team for arranging today. I’m a little bit rusty at speaking to people because obviously we’ve had COVID and as has just been introduced, we’ve spent the last two years growing our business from pre-COVID, we were managing just under 100 units, to as of today, we’re managing about 360 units. So what I’m going to first of all tell you is a little bit about what we do as a business.

a little bit about me, my background and why we set up doing what we do, and a little bit about the process, how we scaled looking for tenants in the marketplace and how we’ve managed to grow and retain and had some good success in it there. If anybody has any questions, obviously we’ll tackle that at the end. And if anybody has any questions, my team are sat in the middle and feel free to flag them down because they’ve all been avoiding talking to people all day so far.

So first all about me, Neil Walton. I’m the MD of a company, my company is called the HMO Guys. We’re based in Manchester and we manage on behalf of investors and landlords across Greater Manchester, Warrington, and then we go a little bit into North Manchester as well, such as Rochdale and Oldham. Currently managing just under 400 rooms. I think it’s about 386 as of today. And by the end of next month, it’ll just be over 400 rooms because we’ve just found out today we’ve won two new developments as well.

We launched in 2018, so we’re just about four years old. So within four years, we’ve gone from nothing, if I’m honest, we were a side hustle. So initially I would do a small recruitment project, so I used to be recruited before and I’ll talk about where that comes into it, for a landlord that I knew. And then from that point, I did such a good job of it and that landlord then asked me to manage his portfolio. One of his friends asked me to manage his portfolio.

and we grew from there. So we’ve done no real marketing to sort of expand the business on this side. All of our marketing is to do with gaining tenants. So we launched with one mission and the mission was that when I worked in recruitment, what I noticed, I worked in recruitment of several sectors. One was graduate recruitment and one was recruitment of senior professionals. But when I looked at it and you looked at the most successful person in recruitment, the most successful person had a stable home, a stable base.

Neil Walton (02:31.489)

had a support network. So when someone new comes into an area and very much like Caroline was talking about, what we need to do is make sure that they have a stable base, a stable network, a stable home. So we set up with the ethos of creating homes within HMOs rather than just creating rooms. So we create rooms, we speak to tenants, we source tenants, we put tenants into the rooms, but we also make sure that they all match each other well, they all get on well, they’re all managed well. My team over them.

Merrill, make sure that they all get on well and make sure that they all match together. And if she hears me ask her if the person was nice one more time, she’ll probably slap me. So we’ve got a briefing process in bringing new tenants into the portfolio. Lucy manages the maintenance. So her favorite thing is wheelie bins, to be honest. So she can tell you all about how to get things like that sorted and how to keep the domestic arrangements of a house working. And then we’ve got Charlotte who…

The first looks after all the compliance. So she makes sure that if we have something that goes wrong, we’ve got the gas safety certificates in place, we’ve got all the fire safety certificates in place and things like that. That is important because if you’re not offering the quality compliant product to your tenants, you’re not going to maintain a quality tenant base because tenants, especially when you get to a big city, are quite intelligent. Agents are quite intelligent in talking to other tenants about…

how it works. So first thing we talk to you about a tenant, if a tenant’s talk comes to us and says, I’m moving out of this HMO because the fire alarm goes off at three o’clock in the morning, the bins are always full, this is that, we can talk to them about our process of how the HMO is compliant, how it’s managed and how it’s working. When I say what qualifies us to talk about what makes a good tenant, so as of today, we sourced 708 tenants into rooms in the last four years. In that four years, we’ve had

Five occasions of tenants being in arrears and as of this point we haven’t got any tenants in arrears with us. Over that four years and them 708 people we’ve only had to evict one person which is all to do with our matching process. And unfortunately I’ve had let two people go on a Section 21 basically on the fact that we didn’t think they were suited to the house and they weren’t, I suppose, adding to the secret ingredient of the house to be fair because if they are not matching the community

Neil Walton (04:49.741)

they’re just going to cause turnover in the house. It’s about managing that process as well. The secret ingredient, I think, of starting or the secret ingredient of good tenants is first of all the quality of the product that you produce for your tenants. So the way that we see it is the tenant is our customer. And although the landlord pays our bill, it’s the tenant that’s signing the check. So essentially, if we don’t have a good quality tenant base in their properties,

we’re not going have any payments off landlords and we’re not going have any landlords there. So tenant is always the king. It doesn’t mean we do everything they ask for, but means that we manage their expectations there. When you’re looking at a development, our most successful developments, and we can look across the board of the 60 or 70 HMOs that we manage with them, sort of 400 rooms, and we can look at which is the most successful, which has the best occupancy, and look at why. And that’s given us some sort of secret ingredients to do it.

And those of you that are HMO investors will know the first sort of key thing when you’re looking at a new development is the location of it. So we get lots and lots and lots and lots of phone calls, probably every day to be honest, from investors looking to do new HMOs and areas. And the first thing we look at is if we were to help you develop a HMO in that area, where are your tenants going to come from? Because there’s no point in having 14 bedrooms.

that’s 20 minutes away from the nearest transport link, 40 minutes away from the nearest supermarket. You know what, you might get the best value deal or the cheapest deal you can, you might get the most number of rooms, but if you can never fill those rooms or keep them at full occupancy, you’ve not got one of the ingredients to having the best tenants. So location is first, transport links is second. So we service an area in Greater Manchester called Salford and certainly what we find there is when we look at things like the tram links, we look at things like the bus links.

from a house, if your house is not 10 minutes walk from a major transport link, getting good tenants is a challenge. And we certainly see that if you’ve not got that ingredient, you get lower quality tenants in that property. We also look, and one of the key things that I think you should all look at when you’re doing your next development is have you got any either key or destination employers in the area?

Neil Walton (07:10.036)

So if we were to look at the difference between a destination and a key employer, so if I look at our area, destination employers are where people want to work because I suppose Manchester as a whole is destination city. But our key employers, so for example in Manchester, we’ve got brands like Missguided, Azos, we’ve got the HUT Group, we’ve got lots of Amazon and things like that, and look at what the workforce is in that area. So if we look at two of the areas we manage,

and we look at the tenant bases in them, we’ve got Amazon in two of the different areas, but one of the Amazon sites is a professional Amazon site, which means that this site has graduates working there, graduate trainees, schemes, et cetera. And then if we look at the other area on the other side, and I can see Meryl’s not like me here to be fair, because she knows what I’m going to say next, we’ve got a site which is a heavily industrial Amazon site with lots of pickers, packers, and warehouse. So what you need to look at is when you do your product,

The secret ingredient there to getting good tenants is understanding the marketplace for that. So if your tenant is somebody who’s a picker or a packer and say, ASOS, which has got the depot in East Lancashire, the HUT Group, which is in Warrington, if them tenants are your marketplace and them tenants can afford a certain level of rent, we need to design your product around what that sustained market is. And you also need to understand the difference between what a key employer is and a destination employer.

Your key employer is somebody like the NHS, somewhere like local government, somewhere like offices, something that’s not, that’s always going to be there, something that’s always going to be an attraction to the area. A destination employer, as Lee talked about customer service and his and some of them were on there, won’t necessarily always be there. So we’ve got to look at what’s always be there and where your sustained cash flow comes from, which is a good tenant, and where you’re going to get your influx of tenants that have the

the sort of bigger money to create your cash flow. So after you’ve worked out your key destination, I think you need to look then at the demand. And that’s one of secret things. We’ve maintained an occupancy the last four years. Our average occupancy has been 97.4 % across the whole portfolio. It did go down a little bit during COVID. And at the minute we’re operating on 100 % occupancy. But when we take in on a new development and we talk to a new landlord about it, we look at the tenant base.

Neil Walton (09:29.676)

And we don’t take on every investment that comes our way. What we do is we look at it and go, is there a marketplace? Is there a tenant? Where are these people coming from? What kind of people are going to live here? And one the things that my good friend Caroline talked about earlier was the fact that she had a house share that a tenant had come from. And there was sort of like a mid-60s guy in there, 22-year-old girl in there, and a mix of tenants. And really, the secret ingredient to getting that right is that we need to create a community in it. So one the things that we’ve done

As an agent, we specialize in accommodation for the 18 to 35 year old market, which really I suppose is 20 to 35. We try as much as possible to have somebody who’s professional or qualified in it. And then we’re sort of creating some level of cohesion between them. So we make sure that there are people that although they may not have hobbies in common, somebody who’s 20 and somebody who’s 25 will probably have some memories in common, will probably have some times in common, will remember some key events in the past as well.

The other thing that we do to make sure that we get it right is we understand an investment in terms of metrics. I’m not going to go on too much about numbers because it’s pretty boring, but when we take on a house, so we take on a house in this area, we can look at that house and say, right, it’s got six bedrooms. And we can look at the demographic of it and say that we know that if we need to let this property within four weeks with these kind of tenants, we need to see this many viewings. We need to have this many inquiries.

and this many will convert into lettings. So we can pre-plan our business and understand the pipeline and ultimately understand the manpower that we need behind it or the girl power to be honest, because I’m the only boy. I think when you’re looking at the secret ingredient of tenants, you’re looking at the community, it becomes ever so important, more so in the smaller houses, because if you’ve got a four bedroom property that has four people in it and one person isn’t a very nice person, to be frank, that can create the whole demographic to go wrong.

If you’ve got a 14 bedroom house, which is probably our mid-size development, so our developments go at the moment from four bedrooms to 22. The 14 bedroom property, you can have the odd person that may not get on. Now, I’m not saying they’re not going to be a nice person, but you can have people with more different interests in them houses and maybe slightly wider age gaps. So might have in a 14 bed, you might have a group of 20 year olds, you might have a group of 30 year olds, but it’s getting that mix right so that everybody’s got somebody to get on with.

Neil Walton (11:56.198)

Also make sure there’s always boys and girls in each house because to be honest, or men and women, if you want to say that, boys and girls is my phrase. Because I think if you don’t mix the demographic up, you don’t want to leave somebody on their own because, and you can talk to Lucy about this afterwards when she’s networking outside because we’re going to make sure she talks to some people soon. But when you talk to Lucy outside, ask her what happens when you’ve got a house of all girls or a house of all boys. Two very different scenarios, but I think she’d agree completely with me that we don’t want a house of all boys or all girls.

Although I think, and as an investor, one of the key things about getting it right, you’ve got a HMO, you’ve got four or five people in it now, and then you go and visit it. I think you’ve got to get it right in your head and make peace with that investment so that you’re, you’ve stepped away from it. It’s no longer your house. It’s not your, it is your property, but it’s not where you live. I think what you’ve got to look at when you go on an inspection to make sure this ingredient in this home is happy.

is it’s not necessarily kept to your standards, but look at are the people in this house happy? Because what we find an awful lot is that we’ll get an investor who’ll come back to a property and look at it and go, the kitchen’s a mess. The wheelie bins are a bit full. There’s a bike in the hallway. Do you know what? How long have your tenants been there? Are they happy there? Are they staying there? And is it going to make your investment cashflow more or less by managing that situation? So if there’s no issue of safety,

There’s no issue of damage. Make sure you view it as this is somebody’s home and then people happy living in that home. And that leads me, I suppose, on to my final point. the final point is pricing, which is, I suppose, in the forefront of everybody’s minds at the moment, because we’ve just seen rents hike up as high as they’ve been in long time. To give you an idea, our rents in Manchester sort of range from probably about 495 to our highest rent, which is probably…

think it’s 775 and I’m looking at Meryl to nod at me. Yeah, okay, perfect. So she’s the lady that gets that. So highest rent is 775. And if we look 12 months ago, we’ve probably added 100 quid onto all of them figures. A, because of utilities, B, because of housing demand, and C, because of the way the area’s progressing, more employers coming in, more demand for accommodation. I think where we’ve got to get pricing right is we’ve got to look at it and go, do you know what we can get? That’s 775, maybe 800 for a room.

Neil Walton (14:22.569)

But in your investment, is it key to you to get that £800 a month for a tenant that stays for six months? Or is it key to you to get maybe £25 less, but have a tenant that stays with you for 18 months or two years? And so what you’ve got to do when you’re looking at that part of the deal, make sure your opportunity costs is scaled across the level of your investment, because the best investment isn’t always the investment that turns over tenants every six months.

certainly doesn’t help us, certainly doesn’t help you and certainly doesn’t help your cost base either because you can’t turn over a tenant every six months without having voids, without having maintenance issues and things like that. I suppose the final area to talk about is making sure that your agent or you as a landlord are compliant. So one of the things that we really struggled with in the beginning and I suppose less so now

is that lots of local councillors don’t ask to see things like fire risk assessments, which means that you don’t, you legally need one for your licence, but a council isn’t going to ask to see it, which means that a lot of people think, know what, I don’t need to do that because I’ve got my licence, I’ve got my insurance, it’s all okay. Make sure that you get your things like your fire risk assessments in place, because if you have something happen, and we really hope that doesn’t happen, we have had a fire in one of our HMOs and touch wood, it was a very small fire and it didn’t cause any damage.

But what that highlighted to us is that actually we had the safety procedures in place. Fire alarm went out, somebody went out and stopped it, somebody went out and fixed it. It was all dealt with in a matter of probably 48 hours. But as a tenant in that house, tenants were a little bit worried that this happened. But equally, we didn’t lose any tenants because they saw that we had the procedure in place to deal with it. And I think that’s the key ingredient to retaining them tenants is making sure that you’ve got the procedure in place. So if you’re a tenant, you’re living in that house, something goes wrong, how do you report it?

How does it work out for you? How quickly does somebody fix it? If it’s something that we’re not necessarily going to, because there’s some things that a tenant will want improvement on, you don’t fix. How do we negotiate with the tenant to make sure they’re happy with the outcome as well? So you get maximum value from your investment and a maximum cashflow from it as well. Some pretty simple things you need to make sure that the person managing your house has for your compliance as well. Just to make sure they’ve got obviously your client money protection insurance, membership to a professional address scheme, and your client accounting. I’ve got to be honest.

Neil Walton (16:46.696)

We’ve come across several agents we’ve taken properties from that haven’t followed that procedure and that doesn’t protect you as an individual, doesn’t make your investment compliant, but means that if something goes wrong, you’ve potentially lost a lot of money as well. And pretty much at the end of what I wanted to say, I want to say basically, if you could take on an agent that you’re going to work with, please feel free to come and talk to us or talk to any of the agents in the room, but make sure you deal with somebody you like, somebody you’re compliant, somebody you’ve got a business partnership with, because to be honest, as an agent, we’re not always going to…

I need to word this very carefully so we don’t seem too bolshy about it, but we’re not always just going to take instructions. You know what, if you come to us with an instruction about your HMO and we disagree that it’s the right avenue for you to take, if you’re making cash flow and money out of your house, we’re making cash flow and money out of it as well. So sometimes we will push back on that. So make sure you’ve got to have a good working relationship because you know what, somebody is going to come to you and as a landlord, you’re going to say, I want to do this. And you want us to be that person that goes, actually, yeah, do you know what, that’s cracking idea.

Or you want us to come back to you and say, actually, do you know what? The tenants in this area would appreciate this more, would bring this more, because actually, you’ve got to go for the market. Because at the end of the day, remember, for you, your HMO is a product. It’s a product that brings you cash flow and income and brings you hopefully a very healthy living in the long run. And in the end, for your tenants, it’s their home. And I think view it as it belongs in their time there, as long as they’re not damaging it.

as long as they’re looking after it, and as long as they’re treating it in what you’d call a tenant-like manner, let them live their lives in it. That’s me. So anybody who’s got any questions.