Watch: Why design matters in HMOs

Tom Charrier (00:04.931)

So, first of all, thank you for coming. Thanks to Van and Helen and the team for putting on what’s gonna be a fantastic day. So I’d like to spend a few minutes just talking about what I think is one of the most important aspects of HMO investing, and that is design. Okay, I’ll get to why that is and the benefits to you in a moment, okay? But before we do that, I’ll just slide through. I wanna show you this, okay? This is…

This is your life. That sounds weird. This is all our lives, right? In terms of where we spend our time, okay, on average. So the green at the top, okay, represents the time we spend outside. On average in Europe, we spend less than 10 % of our time outside, okay? That means 90 % of our time we’re spending inside buildings, okay? About a quarter of it, 25%, we’re spending in buildings which aren’t your home, so your office, the shops, the doctor’s surgery, whatever it may be, places like this.

65 % of your time, okay, you’re spending inside your home, right? So what that means is if you’re 40, right? I was gonna say hands up if you’re 40 or over, it might be easier to go hands down. Come on, who’s over 40, 40 or more, right? Good, thank you for being honest. That means you’ve spent 36 years of your life inside buildings, okay? That’s frightening. Right, 26 of them, okay, you’ve spent inside your home.

Okay, so where we live has a massive, massive impact on our quality of life. Okay, on our health, on our productivity, on our relationships, on our wellbeing. and this isn’t kind of abstract stuff, okay, that kind of designers make up to push design. Okay, it’s been studied, there’s research on it, we’ve researched it, we’ve got data on it, okay? A few examples, there’s many, but just a few.

In well-designed workplaces, people can be up to 25 % more productive. Just think about that for a minute. If you were 25 % more productive, what would happen at year end? Or if your staff were 25 % more productive? Kids in school, in well-designed classrooms, that kind of biophilic can learn up to 20 % faster. And biophilic is just a fancy word, for design that connects people with nature. So it could be…

Tom Charrier (02:18.667)

It could be materials, natural materials. It could be light. It could be views. Patients in hospital, recovering from acute surgery, have been found to recover 20 % faster if they have a bed next to a window with a view that they can see and need less pain medication. The list goes on. It’s phenomenal. And there is a compounding effect. So it’s a bit like.

compound interest on an investment, right? It starts off very small, you don’t even notice it, okay? But it affects your day, okay? It compounds into improving your week, right? Your month, your year, so again, like interest, it starts off so small you don’t notice it, but it’s powerful over time, okay? And again, influences your relationships, your health, your job, your course, whatever it may be, okay? And literally, in developing homes, good quality homes, good quality HMOs for people, you can change people’s lives for the better, okay?

most important thing here, right, it’s not a massive investment of money that we’re talking about, it’s an investment of time, okay? It’s just a bit of time spent thinking about how people use space, okay, and how you can help them do that better, okay? Now, doesn’t mean, excuse me, it doesn’t mean you need super expensive materials, it doesn’t mean you need kind of fancy…

know, features, it definitely doesn’t mean you need to kind of get stuck in competing for the fanciest grid on Instagram, okay? Like I say, what it means is thinking about how people use space and letting them do that better, okay? I had a conversation with someone, don’t know, a couple of months ago. He came to HMOs and we were talking about design, we talking about HMOs and he said, oh, you know, at the end of it, said, are you happy? I said, I love this, but are you really happy to kind of…

accept lower returns because you’re investing so much in design. I thought, shit, I’ve been communicating this all along. We don’t get lower returns because we’re investing in design. We get higher returns. We’re making more money. More and more people, more and young people are choosing homes which support their well-being. They’re not articulating it like that necessarily. They might not be coming and saying, using the word well-being, but they’re choosing homes.

Tom Charrier (04:40.065)

with better designed workspaces, for example, right? Because guess what? Everyone’s working from home now, more and more. Or they’re students and they’re studying, okay? They’re choosing places with more natural light in their bedrooms, okay? And I’m literally talking about survey responses. They’re saying we want more natural light in our bedrooms, right? How easy is that to control for you, okay? Yeah, different colors, different blinds, different curtains, okay? Really, really simple, okay? They’re choosing places with better social spaces. Again, not necessarily fancy.

Okay, but spacious, well furnished, well equipped, okay, and they’re choosing places with better support, okay, better management that supports their needs. Okay, and this isn’t just our opinion, okay, or what we find, we do find it, and it is kind of what we see. Knight Frank studied 20,000 young people last year. This is exactly what they found, A, in survey responses, and B, in what they’re actually choosing. Okay, they’re wanting to spend their money on well-designed homes.

Okay, which support them and their needs. Okay, so yes, there’s been a cost of living crisis, but actually what we see is people being more discerning. Okay, and really wanting to spend their money wisely and being happy to spend a little bit more. Okay, because they’re getting something that they value. And obviously if you’re to give someone that they’ve somebody, excuse me, something that they value, right, you’re going to get rewarded in return. Excuse me. So,

It’s not rocket science, okay? It’s really simple. It’s just about applying and investing some thought into what you’re doing and how you’re designing. And as a result, you’re gonna end up with better tenants, you’re gonna end up with less churn, less voids, and higher revenue.

Tom Charrier (06:29.323)

So, higher cash flow is what we all want day to day.

Tom Charrier (06:39.916)

But remember, if you’ve got larger HMOs or portfolios that can be valued on a commercial yield basis, then that higher revenue is going to multiply up into higher valuations, more valuable assets. This is either going to give you access to lower interest rates because you want a better loan to value when you remortgage, or like many people want, as included, you can refinance more money out because you’ve got a more valuable asset and you can go again onto the next project. So we’ve done this.

know, multiple times many people have. We’ve done it on a portfolio basis as well. Last summer we acquired a portfolio, a mixed use portfolio, commercial on ground floor, HMO apartments above. HMO apartments weren’t bad per se, but there was real scope to make some quite simple but quite powerful design improvements. We did that, not a huge amount of money needed to be invested. As a result, people are willing to pay more for them, okay, so the rent’s gone up significantly.

What that means is when we come to refinance, we’ve got a much, much more valuable asset. So going back to my conversation with my friend, it’s not a choice between investing money in design or investing in design and earning more. Okay, it’s both. So yes, design, like I say, for me, it’s one of the most important aspects. Lots of people say, you know,

raising finance, finding deals, doing the renovation, filling rooms, they’re the most important aspects. It’s this kind of, you know, these four things. That’s what you need to focus on to be successful HMO investor. I get that. Obviously those are important, they’re essential. The way I see it, design is the most important aspect, okay? And the reason is finding deals, finding investment, they all deal with the supply side of…

business. Obviously you’ve got supply and demand. They deal with supply. If you don’t have demand for what you’re selling, they don’t matter. It doesn’t matter how many deals you’ve got. Conversely, if you’ve got really strong demand for what you’re selling because people value it, you’re in a good place. It’s much, much easier to have an enjoyable business with less stress, more opportunity if you’ve got strong demand. And if you do,

Tom Charrier (09:07.691)

you’ll find the deals, you’ll find the money, or the money will find you. Those problems will solve themselves, or they’ll be easier to solve. So again, that’s why I say design for me is the most important, because that’s what gives you the demand. I like this quote. This is not the full quote. I’m going to read you the full quote. It’s an old one. It’s from Jeff Bezos. But it makes you think. It certainly makes me think. Here we go.

He said, I very frequently get the question, what’s going to change in the next 10 years? I almost never get the question, what’s not going to change? And I submit to you that that second question is actually the more important of the two, because you can build a business around the things that are stable in time.

Tom Charrier (09:57.514)

So what’s not going to change? What can we build our business around? Trends will change. Interior design trends will change. So don’t get hung up on following them. What’s in fashion today will be out of fashion in a year’s time. That doesn’t mean don’t be bold, don’t have fun with design. Do do that. It should be fun, it should be bold. We’ve got the fundamentals right first. So again, what’s not going to change?

Right. People will obviously always need homes, but they will also always need to look after their wellbeing. Okay. They’re always going to need community, okay. And friendship. Right. They’re always going to have a purpose. Okay. Whether it’s their work or their study or whatever their thing is. Okay. Their focus. They’re always going to need their health. Okay. Live well, eat well, sleep well. Okay. Their fitness. And they’re always going to need, always going to want to seek out the best value. Right.

which we’ll call finance because it starts with an F. So think about what that means for people in your HMOs. We can’t get to detail, obviously, now about all the design do’s and don’ts and tricks and whatever. We’d be here all day. So what I want to do is also pose a few questions that you can think about, provoke a little bit of thought, and you can ask yourselves as you approach a project or approach an investment. So function. What are people doing in a space?

And how can you help them do it better? Nature. How can we connect people with nature? Because in addition to those benefits we were speaking about earlier, it’s been shown that people will pay more, up to a quarter more, for the exact same products and services when they’re in a green and leafy environment compared to somewhere that isn’t. Again, incredibly simple, incredibly powerful.

Humans have kind of evolved civilization dramatically, but our caveman brains haven’t evolved that much, right? We like nature. It’s kind of hardwired, okay? Comfort, right? How can we make somewhere more comfortable, okay? Not just sofas and mattresses. Obviously, they’re important, okay? But think about noise, okay? Think about air quality. Think about temperature, okay? Depends on the scale of your project, obviously, okay? But think about those things, right? Control, okay? It’s a funny one.

Tom Charrier (12:25.533)

Right, but study after study shows that when we are able to exert some control over our environment, right, or when we’re able to personalize it, right, we’re happier. Even if we don’t actually exert any control, okay, even if we don’t personalize it at all, just the knowledge that we can, if we choose, okay, makes people happier, right? So think about that, okay? We all want happier tenants, you that’s good for business. Okay, and then beauty.

Design should make things beautiful. So think about how spaces make people feel. Do they want to be bold and stimulating and invigorating, getting fun? Do they want to be calm? Do they want to be focused? So think about different spaces. Think about character and how places make people feel. Think about how they make you feel. So when you approach a project, just invest time.
Invest some time upfront in thinking about those five things. have function, nature, comfort, control, beauty. Okay? And I promise you, you’ll not just improve your bottom line. You’ll have a positive impact on people’s lives. Okay? Lots of people’s lives, in fact, as they pass through your HMOs. Okay? So I think, you know, this industry, I love it. I think it’s fantastic. I think we’re lucky to work in an industry where

A, we can get paid, and B, we can do it in a way that can have a positive impact on people’s lives, okay? No matter what the guardian says, okay? Right? We can have a positive impact on people’s lives, and we should do, okay? So, to wrap up, I would say take that opportunity, enjoy it, invest time in design and the thought process, okay? And good luck with your next projects. Thank you.