For residential property investors, two key requisites when doing analysis on a potential deal in today’s marketplace are little different from those undertaken over the last 25 years. As investors we look to buy at a price, which for us represents good value; we want to see the potential for a value uplift via works or a title split of the building/land and for rentals, the prospect for ongoing healthy net yields.
However, a direct consequence of having UK bank base rates at 0.15% for almost a decade from 2009 onwards was that every property investor-landlord wanted higher yields but for single let properties the reverse happened as prices in many regions gradually increased but average rents did not.
No surprise that many investor-landlords then saw an opportunity in switching their strategy towards the multi-let HMO market and a boom in shared accommodation room supply gradually occurred in many towns and cities. Once again this resulted in yield compression, particularly in more affluent locations where it became ever more difficult to make the numbers on new projects add up.
In London, despite a sharp increase in room rents in the post-Covid period, it is still not easy to buy a suitable property to convert to a 6-bed HMO in non-article 4 areas without having to put in a very substantial deposit or where significant and costly structural additions are needed to enhance the property’s value. As such many have been turning towards converting commercial property into shared accommodation utilising Permitted Development Rights (PDR) and making use of Prior Approval.
Some property educators saw this emerging trend about 11 or so years ago and aided by some new lenders entering the HMO market, the concept of being able to re-finance and pull back out most or even all of the deposit and works costs was heavily promoted.
Fast forward to 2023 and bearing in mind the above, I recently met up in Coventry with portfolio landlord Jess Leader to view her most recent HMO conversion project, which was recently adjudged as a finalist in the Property Investors Awards for HMO Deal of the Year (6+ rooms). As you can see from the accompanying photos, Jess has produced a very stylish contemporary product and unlike some HMOs and co-living units, almost all the bedrooms are quite spacious with a sofa and double bed as well as a mini kitchen.