Watch: How to build a £30m HMO portfolio without using your own money

Kane Andrews (00:04.494)

Okay, good afternoon everybody. Can you hear me okay? Yeah, that’s great because two days ago I couldn’t speak. But it’s lovely to be here. If any of you haven’t heard me sort of talk before, I kind of tend to go around the country and talk about one of my favorite strategies that I’ve been doing and slogging away for 14 years. So I’m aware I’ve only got about 20 minutes or so. So I’m just going to jump straight in, right? Let’s just get to the good stuff and crack on. Right, so.

A bit of background on me, I think it might help for you to understand a bit more about who I am. So I was born in High Wycombe, not so far from here. Any other folk from Buckinghamshire? Yeah, bigger up the Buckinghamshire at the back. As you said, thank you very much. I was a professional drummer by the age of 11. So my path was sort of set for me very early on as a musician. At the age of 16, my parents said I’d either be a millionaire or in prison. And thankfully, I’ve only done one of those at the moment.

and not planning on doing the other. Around 17, I moved to London to pursue music and I started my first business at 18 years old. At 21, I went on tour around the UK, Europe and South America as a musician and as a performer as well. So as I say, at the age of 18, I started After School Arts, which was my first ever jump into the entrepreneurial world. And I sold the company three years later. Guess what I did with that money?

bought that first house. It was a two up, two down in Nottinghamshire for 53,000 pounds, because it’s all I had. I’d saved nine grand and it’s all I could afford at the time. But I knew that I was very aware that in my 20s, without having any money, starting off with 300 quid, I was going to have to buy, sell, buy, sell, buy, sell. So that in my 30s, I could buy, hold, buy, hold, buy, hold. And that’s exactly what happened. So with that in mind, at the age of 25, having flipped

these sort of HMOs, I’d already made 250 grand, which I was very happy with as a 25 year old, previously poor musician. At the age of 27, I wanted to take my old life as a musician and bring it into this kind of HMO world, into property investment. Like who here has ever heard anyone say, oh, in my old life, I used to XYZ, anybody? Yeah? I didn’t want that. I wanted to bring…

Kane Andrews (02:28.619)

my past into my future. And I like the thought of treating people like they are a celebrity, like they are a rock star. And that’s really where the rock star property management was born. So I built that company up. We did property management for HMOs, we did rent to rent, but I ended up selling that company when I was well, about three or four years later. By the age of 31, I’d bought and sold

about 30 properties at that time. Now that sounds hopefully reasonably impressive, but what isn’t impressive is how bloody hard it was to get there. So what I want to do today is talk to you a little bit more about buying power and the real restrictions and how to smash them down so you don’t really have too many restrictions, not just when it comes to property investment, but for HMOs as well. So as I say, at 31 I sold Rockstar Property Management, then I started to advise people.

I felt that I was pretty qualified enough to kind of say, look, let me just tell you what I’ve done and let me advise people. So I do that with football players, various different CEOs and high net worth individuals as well. By the age of 35, which is what I am now, I bought my 70th house and that’s with a combined value of 30 million. You can give me a round of applause if you want. mean, come on. It all looks good up there, but trust me, the journey’s not easy.

And with that in mind, as an educator in the early days, hence after school arts and my freehold interest, I actually bought a private school last year. And we’re just in legal to have our second private school owned as well. Something that’s of an interest to me. So we sponsor Wickham Wanderers. Anyone heard of Wickham Wanderers Football Club? Yep. That’s the private school there. And that’s in Wales. That’s my wife and I. We love a bit of music or is it a festival?

Anyone notice the guy at the top right there? Any football fans? Gareth Ainsworth? And that’s me and my family on the left. Okay, great. That’s out of the way. Let’s talk business. So what’s today all about? So I want to outline three ways that you can scale a property portfolio. Put your hands up here if you do not own, you can be honest, any HMOs right now. I’m going to be HMO specific, yeah? If you do not own any. Put your hands up if you own anywhere between one and five. Five and 10?

Kane Andrews (04:56.877)

10 to 20, 20 to 30. Nice, 30 to 40, and 50 and above. Yeah, good stuff. Great. So there’s a nice mixture of people. I want to discuss the benefits of HMOs. Believe it or not, I don’t rent my properties by room, which has a HMO awards. It’s like, red alert, what’s going on? We have a very different strategy of HMOs. We make HMO compliant.

we actually rent it to companies that pay the equivalent of what those six individuals would pay. And we’re to go into a bit more on that. And as you rightly fully said, thank you, I will reveal what I believe you might not believe it, but I believe is my secret source to success and the reasons why I personally invest in HMOs. And hopefully you’ll find actually it’s not the usual side of things, which is cashflow. But we’ll go into that. Buying power. For those of you that have got under 50 HMOs in the room,

which was most of you, what is stopping you? Like, what exactly is the real reason why I can’t just go out now and buy 10 million pounds worth of properties, convert them into C4 use, get them all rented? What is stopping you physically? Any answers, please? Yeah. Capital for deposits. Money’s the restriction, right? But there’s a couple of ways that you can get money.

Thank you very much, sir. To get that capital, and one is to save. Who here has saved money to be able to buy a property? Hand up? Yeah. And you tend to own 100 % of that, would you say, if you’re buying it yourself? Great. What’s the second one? What else can you do to be able to come up with that money, like you said rightfully there, sir, to be able to knock down that restriction of not having the capital?

What was that? Borrow. Who said that? Put your hand up. Yeah, I owe you a drink. Hello, borrow. Well done. Borrowed money. Who here has borrowed money given a fixed return? Oh, that old chestnut. We’ve all been there. And you tend to own 100%, right? Because you give a fixed return. Because the return that you give is not quite as great as the upside that you get by owning 100%. Right? We’ve all been there. What’s the third? Try again.

Kane Andrews (07:24.661)

Who said that? Yeah, investors, but what kind of structure? Join venture. Thank you very much, JV. And what I tend to do is I’ll say you put in all the work, sorry, we’ll put in all the work, you put in the money, the equity, and we’ll go 50-50. Not reinventing the wheel, very straightforward process. So let me just quickly tell you about my first 10 years. Every property that I bought, bar one, has been a HMO. That’s probably why I’m speaking here today.

So the first 30 HMOs that I bought took me 10 years to buy. The first 30. And by the way, we’re talking about home counties, Buckinghamshire, Berkshire, Essex, Kent, Hampshire, right? We’re not talking about the cheap stuff right up in the north of the country. This is quite expensive, 250, 300 sort of purchase prices. So there you go, first 30 took me 10 years. Now the last 40 took me two years. What on earth did I do different?

that has given me more than double result in 20 % of the time. 30 HMOs in 10 years, 40 HMOs in two years. And I’m not by the way, I’m just for clarity. I’m talking about hardcore buying, right? That old school, you put a deposit down, the freehold’s in my name, you a bridging loan in place. I’m not talking about these lease options, rent to rent, it’s mine, right? I’m the freeholder. What did I do different? What did I do different?

One, two or three. So let me first ask the room. The first 20 or 30 HMOs over 10 years, what did I do? One, two or three? Fingers up. One, two or three? One, two, two, two, two. If you’re saying P, so you’re telling me where to go. Thanks, sir. Do you want me to tell you? I just did hardcore one. Just one. All the money that I made in my 20s, I didn’t see any of it.

because I always back to back a sale with a purchase. I just didn’t have that time. And to be honest with you, when I started, I wasn’t well connected. I don’t know high net worth people. We’re from quite a poor family. So I don’t have those circles. But I did number one. God, was it hard? Really hard. You’re trying to create something from nothing. That’s basically been my career to date. And when you start with nothing, it turns you into a certain type of person. It’s like, I’m gonna make this happen.

Kane Andrews (09:50.153)

I don’t really care how I’m going to do it. Questioning it is not question. It’s happening and I’m going to do it by adding value and I’m going to sell to people at the commercial value, right, once it’s at full occupancy and I’m going to aggressively reinvest. That’s exactly what I did in my 20s. That’s how I got to that level.

How on did I get to that? And it’s not through just making more money through sales, because we all know how slow the system is in the UK. How did I do 40 in two years as opposed to 30 in 10?

JV. JV has completely changed just being open with you, my life, my net worth, my income. You know, this isn’t BS. I’m not here selling you something. I’m just being honest with you. And this is where a tiny, tiny change in my business model has exponentially changed my life. Who here has ever or is currently deal sourcing? Be honest, hands up. Yep.

Now for you lovely people, it’s about four, what are you doing? You’re getting a deal, you’re getting an investor, and you’re putting the two together, correct? That’s exactly what I do. But respectfully, the difference between your model and mine is I’ve got a JV contract in the middle. And this is what I say to deal sources, don’t give someone else it, get in for half, just get a joint venture contract together. But the metric that we use, which is absolutely essential, post refinance,

is what is the investors return on their money left in? What is the investors return on their money left in? That is the metric that Rockstar use for all of our properties. And it’s something you should never ever take your eye off. 50 % is more valuable than 100%. Any mathematicians in the room that want to come up and slap me around the face for saying that? 50 % is more valuable than 100%.

Kane Andrews (11:52.967)

What on do I mean by that?

Kane Andrews (12:00.338)

Yeah, or something like I’m always looking for scalability. I don’t care if you’ve got 100 pounds in your bank, 10 grand, 100 grand or 10 million. If you scale, you will run out of money. And I was in a reasonable position when we started this in about three and half, four years ago. But there was going to come a point because property is not cheap. You’re not putting down five grand here and there, are you? And there will come a point we run out of money. So I recognize that early. I’ll be honest with you.

Guess what I do with my money that comes through properties. Guess what I do with my money. I’m here to be honest with you. Absolutely nothing. And I leave it in the bank and that’s why all my staff have always been paid. That’s why the rent on our office always gets paid and I grow from within whilst the properties are bringing in this cash flow and something else which I want to come on to. Okay. So benefits then, how are we doing for time? Just checking. We’re good?

Okay, so why do you think I invest in HMOs? Because it’s been a long 14 years, let me tell you. Why? Who said that, sorry?

Say it again. If I had a microphone on.

Profits, yeah, what kind of profit? What’s the financial benefit? Why do I wake up every day? And it is, it’s seven days a week. What is it? Well, what’s the income that you get from HMOs? Come on, cashflow. Okay, cool. Second one.

Kane Andrews (13:33.649)

Yeah, and what can you do with that uplift?

Refinance. Thank you very much. Refinance proceeds. The difference between your bridging loan and costs and your term loan. Right? Who’s had that nice, beautiful statement that comes through and you get a lump sum in your account. Anyone? Know what I’m talking about? Yeah. My day is Monday. Come on. I want to get that weekend out of the way because we’ve got that day. And sale profits, right? Who sells HMOs? Yeah, hardly anyone because it’s bloody difficult. The surveyor that Shorebrook will come, know, that Shorebrook will give you.

The value will be far higher than what a buyer will pay. So shock horror, here’s the bad news about HMOs and I’m sorry to bring this up. You’re going to have to sweat out the equity, sweat out the asset and the income, build the equity, make it empty and sell it to 95 % of the market, which is residential buyers. That’s your exit on HMOs. Or you can then look at what we do, which is more of the institutional side. But again, that’s not easy. So for those who’ve got a couple here and there,

The longer you hold it, the better it becomes. But it’s not an easy flip, right? Especially not now. Okay, what do you think my option is? Why do you think? One, two or three? Shout out for me. Two, one, one. Bingo, anyone else? Legs 11, no? Well, let’s talk about it.

So who wants to know how I make lump sums from HMOs without selling? Now I’ve just told you that selling is an absolute pig in the HMO space. I’m sorry to break it to you. It just is, right? And I’m sorry if there’s any brokers in here that sell HMOs, there are some fantastically successful transactions that go on, but it doesn’t happen a lot, okay? Just being honest with you. So this is what I would implore you to do if you want to do it. And if you don’t, not a problem, but I want you to learn something today.

Kane Andrews (15:31.432)

So refinancing, as I’ve told you, it’s the term loan minus the bridging loan equals refinance proceeds. So let me give you a quick numbers, right? Let’s say your purchase price is 300K. This is quite typical for us. 75 % of 300, shout out. 225. And let’s say your GDV, the Hampshire Trust Bank or Shorebrook have given you is 500K. Everyone knows what a red book valuation is, yeah?

Yeah, you get the price purchase price and the GDV within that same valuation. If you don’t have it, you need it. Sure, broken number one Hampshire Trust Bank, Lambay, you can’t filter that from there. And 225 bridging loan on the 300 purchase 500 K GDB what’s 75 % of 500 375 what’s 375 take away that bridging loan of 225 150

So that’s 150 grand. Does everyone understand that? 75 % of the purchase, 75 % of the GDP. Take that off the other one, your 150 margin. That’s what you get in your bank. This is what you’re saying you’ve had, right? When Pure Law send that from Shorebrook and you’re like, come on, there’s your refinance statement. 150 grand. Guess what the rockstar model is. Shout out, please do. What’s that? Find another one. Find another one, go again.

But what happens with the split? £150,000? It takes about six months.

That is netting your bank accounts that is tax free because it’s mortgage debt.

Kane Andrews (17:16.136)

So that’s completely separate. So that is the investors money. So there’s three things, the three places we put investors money, 25 % deposit, the legal is in stamp and the refurbishment. But I’m just talking solely about that bridging loan of 225 and the turbo loan of 375 and the difference of 150. What do you think I do with that 150? And I don’t go off to the Bahamas with it. Anyone? Well, it’s a 50-50 split, right, with your investor.

So we go 50-50. And Rockstar would get 75K of that. The investor will get 75K back of their investment that they put in at the beginning. And that’s how I make lump sums from HMOs. 50 % of this figure is yours. Now this is my real success in HMOs. This is what I’ve been doing. But one thing I’ve never ever taken my eye off is that very first thing I said to you at the beginning of the talk.

What is the investors return on their money left in? Quick maths. They put in 150, right? Of those three things I said, deposit, stamp duty, legal, refurbishment. We get 150 refinance proceeds. Rockstar gets 75. Happy days. The investor gets 75 back from their 150. They’ve left in 75k. Let’s say that they get seven and a half grand a year in their rent. Net rent after tax. That’s a net yield of

10%, right? Net return. And that’s the metric that we use. So tell me if you haven’t followed that. Hopefully, we understand that. Cool. Okay, any questions on that before I of quickly move on? Yes.

Kane Andrews (19:02.503)

See, this is a great question. What interest? Interest is not discussed. Interest is only discussed on loans. This is not a loan. This is a joint venture. So again, it’s not looking at the fixed return you’re offering an investor. It’s looking at what the deal is going to be able to give them back if they were to get 50 % of the deal.

Kane Andrews (19:31.815)

50-50. Yeah.

Well, actually, technically we do. So it’s a good question, right? We get, what’s your skin in the game? What’s your input? It costs me thousands in staff resources, the whole lot, so we’ve got quite a few staff. So there is skin in the game, but what about my last 14 years experience? Someone’s got to buy into that knowledge, you know? And if you’re really experienced, don’t do it, go do it yourself. If you’ve got that HMO status, as these lenders say, where you’ve had 12 months of experience, go do it yourself.

but there’s a ton of people that haven’t and that wanna have a foray in property investment. They don’t really know where to start, because we all know where Buy to Let is heading right now and has been for some time. So we’re looking at alternative assets like HMOs. Yes.

Kane Andrews (20:22.372)

Yep, through a joint venture contract. The company’s house will show you that it will be 50-50. I’m always a director on RSPVs. The investor doesn’t have to be, but it’s a 50-50 joint venture. We put in the resources, they put in the capital. Happy days.

Kane Andrews (20:42.683)

This, what’s your name, sir? Ed. It’s a fantastic question and quite a prevalent question right now. Rockstar are currently in the process of buying out every single investor that we have. And that’s just my strategy. That’s just what I prefer. I do it through a mixture of a few things. On the next refinance, all of that money will go to them plus our own resources. Because my wider goal,

is to sell a portfolio unencumbered. And there’s not too many patient people nowadays that will wait, but I’m willing to wait. I’ve been around a long time doing this and I’m willing to wait. We split our portfolio up into three. One, interest only. I just want to get the highest cash flow on that. Two, I will have on capital repayment and we’ll make overpayments because I just want to get that third down to zero. And then three, we’ll have on the market at any one point.

Diversification within HMOs is absolutely key.

Kane Andrews (21:49.988)

Yeah, so good question. So within our JV contracts, it says that if one party wants to sell, the other one has first refusal to buy them out. If they don’t want to, then we go to the market basically. But there hasn’t been one occasion where I haven’t bought an investor out when they want to. Okay, so how does this sound to you guys? Yeah, hopefully it gives you a bit more different spin. People get into HMOs for cashflow. I hear it a thousand times, is cashflow cashflow? But actually there’s more to it. Tiny, tiny adjustment to your model.

will make a whole difference. Going back to the 75k of Rockstar’s half, we’ve had millions, if I’m honest with you, it’s over 2 million now of that money itself. And what that does for us, it just works as like a working capital. And it is incredibly useful to run a business when you get big lump sums from about six to eight months work really per deal. With the way the banks are right now, maybe about four or five years, but hopefully they’ll turn out.

Okay, so this may or may not be interesting to you, but if it is, what I’m doing is a bit of a free call with anyone that just wants a bit of advice. I’m not a salesperson, I’m not going to sell you anything. But look, I like to communicate within these spheres. So if you’ve all got your phone, grab it out, open your camera, scan that QR code and it will take you to a WhatsApp and it will have a pre written message. Hi Kane, I think it says nice to meet you at the HMO Awards. Just put your full name, your email, press send.

and then we’ll just give you a call. So feel free to do that if you would like to. We can have a chat whether you want to learn more about what I do, if you want to invest, if you don’t want to invest, if you want to tell me about your neighbors, not a problem. But why not? So if you’d like to do that, please do. I think we’re all good for time. Thank you very much. Lovely to speak to you today. Cheers.