Finding the right location for your HMO might take some time but if you want to create an HMO that cashflows for many years to come, your due diligence now is worth it. This is the first step in the process and the MOST important. Identifying your ideal investment area will also allow you to grow your portfolio quickly as you test and refine your model with a relatively small set of variables. This will eventually save you time and money and allow you to create a ‘cookie-cutter’ approach as we have done in our company and repeat the same steps faster and more efficiently each time.
Initially you will need to choose your ‘macro’ location. This is the town or city where you are going to make a professional HMO work for you. In terms of an area where the most successful professional HMOs are located, there are some key characteristics you need to look for, which are namely:
- A population of NO LESS than 80,000 people – otherwise you are unlikely to have the right number and supply of houses.
- Robust and various transport links to the wider region (train, coach, bus, motorway, tram etc).
- Within 20 miles of another equally large conurbation.
- At least 20 medium to large employers (3000 people plus) who have a significant need for skilled or semi-skilled labour.
- Local plans for growth, regeneration and investment (this is not always easy to uncover but looking at the local plan will ascertain local trends for housing and employment. Knowing the priorities of your local council for development over the next five years is a core part of understanding the viability of a potential HMO).
- Retail and shopping facilities that cater for all segments of the population.
- At least 10-15% of property in the rental market (i.e. predictable and steady rental market). This is true of most of the UK at present! This factor is important as it influences your tenants’ ability to move up and out of your HMO eventually. Some may leave due to job changes, others will purchase their own property and many will move into a single let property. If there is limited opportunity to move up the rental ladder this will affect the popularity of the area with regard to HMO room lets. Also having a strong local rental demand will ensure there are plenty of lettings agents locally who you can work with to let out rooms.
So as you can see, choosing the right location to invest in is critical if you’re to make the most of your money and investment, doing all you can to get a good return. After all, that’s why you’re in business, isn’t it?