The mistakes I made with HMOs

It’s easy to think that everyone else has it easy. Especially if you’re looking ahead at someone who has ten times more property than you have. We all have a tendency to compare ourselves with others don’t we? Even though we know it’s not helpful, if we’re completely honest with ourselves we can’t help it!
Although comparing yourself with other people is often unhelpful, it can also propel you to take more action than you would have done alone. I wanted to share with you how I took a lot of risks and made a lot of mistakes to get to the point of having over 150 rooms in ownership or management, a pub, a commercial conversion, and a portfolio of single buy to let properties.
For example, when I decided to invest seriously in HMOs in 2012, I bought a small two-up, two down. It had one shared kitchen and one shared bathroom. It was small but I loved it. I poured hours of my time into that one house. And I spent very little on the refurb – about £7000. Which is about the profit I made in my first year. It was 100% return! But I was still swapping my time for money. That house became a part-time job for me as I tenanted it, managed it and even cleaned it!
On my second HMO, half way through the refurb, my builder mentioned an idea he had to go into the loft and convert it to another lettable room. Despite not having the money, nor knowing where the money would come from I said YES to him. So he started the work and I couldn’t pay him.
When the Council’s Building Regs Control officer came round his jaw opened to the floor. Not because I was doing such a good job project managing it. Quite the opposite! He dropped the bombshell that I would need planning permission for a 7 bed HMO and acoustic insulation. I had NO idea what he was talking about so had to rapidly go home and google it.
If I had known all that beforehand, I would have saved myself thousands of pounds.
I began to see that doing it alone was costing me time, and money. And I wanted a business that saved me time and made me money.
My basic problem was that I was too proud and independent to ask for help. I wanted to show the world I could do it and I wanted to prove that I was as good as anyone else in property. Deep down, I felt second rate. In many parts of my life I had felt a failure (I failed my ‘A’ levels, my first marriage failed, and I didn’t think I had always put other people first as much as I should have). So here I was determined to change it!
Wendy was going to WIN! But my pride was getting in the way of my success.
I bought a flip that flopped.
I failed to properly investigate asbestos in a building which cost many thousands of pounds to put right.
I bought a house with Japanese Knotweed.
I bought an apartment in Portugal and rapidly had to sell it when we realised the market was flooded.
I bought a house with my JV partner which I massively underestimate the refurb costs on and we overspent by £30k (and had to leave it in the deal).
…and many more.
The reason I am listing all these admissions is to say that you too will probably make many mistakes if you are determined to get to financial freedom. But the biggest lesson I learned was not to try to do it on my own.
Once I got involved in a community, listening to experts who had already done it and could help me with my deals and warn me of upcoming likely challenges, and educating myself about property thoroughly, I started to see the impact.
And I got my time back, and I started to make money.
This is not a post to sell you mentoring or training and education. This is a post to help you see that you will probably make mistakes. And you will learn just as I have. But you could avoid many of those mistakes and go faster and better if you align yourself with the right people at the start. Learn from my mistakes, so that you can make money quicker and with far less stress than I did.
Oh and by the way, apart from the Portuguese apartment, we still have all those other properties to this day. So there is always a silver lining to the property cloud of doom.
What mistakes have you made? What is your biggest regret?
Discussing a property deal

Worried about occupancy rates in your HMO?

If so, perhaps Google translate should be on the top of your list of tools rather than Spareroom!
WHY?
Here are the latest official UK population figures
    • UK population is growing five times faster than the EU27 average (Official ONS figures)
    • The UK population is now estimated to be 66.4 million, as at mid-2018
    • 10% increase in number of international immigrants over preceding year, jumping by 54,000 to 626,000
    • In the last year it has grown by 395,000 net (after people leaving, births, and deaths)
  • 69% of the population increase was due to immigration
  • England takes a disproportionately high level of this increase, out of all four nations of the Union
HMOs are perfect for new people to the UK because
  • they can’t get a mortgage
  • they want the convenience of all-inclusive rents
HOWEVER we as investors and landlords need to help them (and us) by
  • providing accessible information
  • explaining the legal requirements and their obligations under the AST
  • ensuring rents can be collected (if they don’t have a
  • using Right to Rent when necessary
  • checking all documents thoroughly
What other things might help you attract foreigners to your HMO and keeping them as paying tenants?

How do I maximize my profit in an HMO?

If you’ve got your first HMO up and running, you’ll know that the first 9 – 12 months are what I call the ‘teething period’ . Your bills will be all over the place, you’re still working through all the costs of the refurb, and your tenants are still settling in. There’ll be snags you hadn’t predicted, and your agent will be frustrating!
At this point you might think ‘was it all worth it, or should I do Serviced Accommodation’?!!
HANG ON IN there! Is my advice – it gets much better in year two. You haven’t yet really benefited from all that hard work you put in.
Here are some suggestions to help you maximize your profit after the teething problems have died down:
1. Create key performance indicators that you regularly assess, such as cashflow, profit and loss, occupancy rates, time on the market before rooms are filled, your monthly cost of advertising, your time input, monthly maintenance costs and yield. Some of these KPIs can be analysed annually, others quarterly and some monthly. Keep an eye on your business statistics so that it is controlled, measured and tweaked where necessary.
2. If you are using the skills and time of other people, either as contractors, service providers (such as a VA or PA) or employees, ensure they report to you their key results areas (Read Life Leverage by Rob Moore for more on this) on a weekly basis. With this information you can then identify where time and money is being lost and where their skills are most useful and effective. And remember Sheryl Sandberg’s famous words when it comes to choosing a member of your team – ‘Hire slowly, fire quickly’.
3. Each time you readvertise a room, consider adding a few pounds per week increase to the price. A small amount will not affect your enquiries, but it will increase your bottom line.
4. Collect rents on time and regularly check them with your online accounting system. Each time you create a new tenant entry, you can create a recurring invoice (which doesn’t need to be sent to the tenant). This then allows you to reconcile with actual income in your business bank account. Even a few days of late payments per month will impact your cash flow.
5. Create a late payment policy. Although you cannot charge fees to set up a tenancy, you can charge for chasing rent and late payments. Decide at what point you will go down the route of evicting a tenant, and keep abreast of the legal process by becoming a member of an accreditation scheme such as the Residential Landlords Association or National Landlord’s Association (who are due to merge soon anyway). They have helpful guides and legally compliant forms and letters you can use. Having a policy means you can remove the emotion from the process and outsource this to a member of your team.
6. Assess your regular outgoings such as utility bills, insurance, broadband and mortgage costs. Reducing bills, even by 5–10% per annum will compound your cash flow and profi ts. Does your cleaner need to come weekly or could fortnightly be enough? Are all the bulbs in the house LED?
7. Take regular meter readings to assess usage. If bills are rising fast you need to investigate and identify why. There are a number of devices available that allow you to control the heating and temperature (often the largest jump in bills is due to additional heating. Tumble dryers are a common culprit for rising electricity bills). Are there appliances that could be linked up to a coin-operated meter and cover the cost of use?
8. Keep an eye on new technological developments in the HMO industry. Whether it is a new piece of software that can help notify you of late rent payments or an app that can control your heating remotely – use technology to systemise your business, thus saving you time and money. We have a phrase ‘low-cost and no-cost’ which helps us evaluate the cost v return of any app or product.
What other ideas do you have or have you used to grow your profits year on year in an HMO?

How to grow your HMO profits year on year

Raising Finance for your HMOs

I could write a lot here about the HOWs of raising finance. (In my latest book there is a whole section on this – so grab your copy now – www.epfop.co.uk)! 

But I don’t really think that it is the HOW that is the problem. There are two areas that influence us MUCH more with regard to raising finance:

  1. Internal beliefs
  2. External context

As Henry Ford (apparently) said ‘If you think you can, or you think you can’t, you’re right’.

How is it that some people have investors lining up to work with them, and yet some of us, despite having good deals (even average deals), find it SO hard to raise person-to-person finance?

With mortgage markets getting more regulated every day, and products becoming more refined, there are also many more challenges to getting commercial finance.

So we are facing two problems – getting mortgages from banks and getting money from investors. And as we all know, without liquidity we cannot develop HMOs (even if we are buying with ‘low’ money down).

Here are my tips to creating a pipeline of money for your deals:

  1. There are amazing stories of people who have gone out and raised £150k for their first project from an investor. Yes that does happen. In my mentoring group, one lady did just that with NO experience. Amazing! But TBH this is the exception. Most people start by raising £20-30k from family and friends. Aim to start small. Just raise a small amount (although treat it like a large amount) and take it on a % return basis over 12 – 24 months.
  2. Build your confidence first. Speak to people you know, like and trust and share your hopes and dreams with them. Those that doubt you, stay away from – they aren’t ready to lend you money. Others who do want to help you and encourage you on your journey are the ones to focus on.
  3. Take some form of action EACH DAY. NO EXCUSES. Talk to one person you know. Put a post on Facebook about what you’re doing. Follow up someone from a networking meeting. Keep asking the question ‘ WHO do you know who …’ You’re action will create momentum and belief.
  4. Study money mindset. Work on your internal beliefs. Read about other people’s achievements in raising finance. Allow yourself to believe that YOU CAN DO THIS. When you find yourself disbelieving tell your mind it has got it wrong! If it can be done, you too can do this.
  5. You can only control your internal environment. You cannot alter the wider environment with all its facets. Be controlled about what you let yourself read, think and be affected by. Environment dictates performance. Ensure you spend 70% of your time (or thoughts) in an environment of success. (Not always easy if you are in a job you hate, or with a negative partner. They cannot control your mind though, only you can do that).
  6. Learn to be laser focused and the best in your niche (your area, your brand, your type of HMO).
  7. Study financial markets to understand just HOW VALUABLE your offer is to an investor. Understand the effect of inflation and QE on the value of money (and cash). And how (as Kiyosaki says) ‘savers are losers’. If you understand this, you can explain it. If you can explain it, you can educate people. When people are educated they start to see you have the answer to their problem (and will be much more interested in working with you).
  8. Create a CAPSTONE pitch (I can tell you more about this if you wish). There’s an infographic uploaded to the group you can read that tells you more.
  9. Keep getting better every day. Engage, read, learn, listen, look.
  10. Get your paperwork right. (Tomorrow I’m going to share ‘How to be Mortgage Ready’). If you get organised, then bank finance will be much easier to come by.

Do you have any other thoughts? How do you feel about raising finance? Nervous or excited?

If you want a FREE copy of my new book (just pay P+P) go to www.epfop.co.uk

Why you have to take a leap of faith at times!

In life there are many times when you cannot determine the outcome of your actions. You cannot see the final results that will be achieved by what you decide today to do, or not do. You might be able to guess at your results by looking at other people’s outcomes who have taken the same action, but even then there are so many variables, it’s impossible to determine with certainty that you will get the same results as them.
Where does that leave you? One path of action would be to find out more information. To analyse your potential strategy in more depth. To minimise the risks of failure.
Another action would be to look at people similar to you and see how they got the results you want. How did they overcome some of the same hurdles you might have to jump? Another action is to wait a bit longer, and see whether things will improve by themselves. You might win the lottery after all, and then all this planning and action taking could be a real waste of time couldn’t it?
Or what you could do is make a commitment. A decision. Today. To change what is the BIGGEST issue in your life. Today. Whether that is lack of money, being overweight, a dysfunctional relationship, not getting enough sleep, not reading enough or smoking and drinking. The only thing you need to do is make a PROPER decision. Not a half-hearted ‘maybe’. Not a procrastinator’s ‘Will do that when …..’ But a true, decisive YES.
Today I commit to …… getting out of debt in a year; losing half a stone; stopping seeing x person; going to bed at 10pm; reading a book a month; quitting smoking and drinking. Today I commit to being the best person I can be. I commit to finding deals and finding money so that I can invest in property and in (2, 3) years time (you decide) leave my job.
There. That’s it. You’ve done it. Now you have to just do it. Nuff said.

Taking leap of faith

Photographing your HMO rooms!

When your HMO is completely ready and fully dressed, set aside some time (or pay a professional) to take a full series of photographs, detailing all aspects of the HMO. Effective property photography involves a little planning, time and applying the right techniques to get the best results. Photos should sell your listing and help to create a story. They need to show the property in the best light and appeal enough to get tenants to visit in person. Here are some common mistakes to avoid, plus ways to fix them to ensure your listing stands out from the competition. Here are ten tips to ensure that your photos show your property off as aesthetically as possible.

  1. Use a DSLR camera. The biggest error many agents and landlords make is using poor quality images. Especially with low-cost listings, many agents think it is acceptable to use grainy images, which often results in room voids. Property advertising requires high quality images. Smartphones and basic point and shoot cameras just don’t provide this. To get the images required for effective marketing, you need to use a DSLR camera. Research shows that listings shot with a DSLR camera gain more interest faster than those that were not. Learning how to take your own photos isn’t hard, it requires the correct equipment, some practice and knowing basic techniques to get started.
  2. Attach your camera to a tripod. Hand held cameras are great for taking spur of the moment pictures, but a tripod will give you the stability to take clearer, sharper photographs.
  3. Switch on all the house lights. Even during the day, having all the lights on in the property will instantly make it look warmer and more appealing. Switch on all bedside lights, draw back and straighten curtains and blinds, and turn on any ensuite lighting. Lighting makes a huge difference to the appeal of an image. If there isn’t enough light then the photo will appear dark and grainy, too much light and the image will be over-exposed, reducing the amount of detail visible.
  4. Avoid reflections. There is nothing more unprofessional then flicking through images of a listing and seeing a reflection of someone in a bathroom. All good photographers have the skills to avoid getting their reflection in a shot and this also includes the reflection of a flash and the camera. Try using different angles in a room that has reflective surfaces, like kitchens and bathrooms, to reduce the chances of getting caught in the photo. Sometimes it isn’t possible to completely avoid a reflection, especially in small, tight spaces. All you need to do is take your photo as normal, then use an image editing service to remove the unwanted reflection. Sometimes it’s impossible to avoid catching your reflection in an image. Another suggestion is to set up the shot using the self-timer on your camera, then step out of the room.
  5.  Use lighting equipment. Dark corners don’t do an HMO any favours online, and simple lighting equipment will help you illuminate them. A flash will help, as will a reflector and even a light stand.
  6. Use a bubble spirit level. To prevent your pictures looking wonky, use a bubble spirit level to ensure your camera is perfectly angled for each room.
  7. Take exterior shots in the morning. Getting up a dawn isn’t everyone’s idea of fun, but it’s the ideal time of day to get the best photographs of the outside of a property: dawn light is better and there are fewer people around.  Watch how the light hits the property. At different times of the day, and at different times of year, the light will change how the house looks.
  8. Process the images. Processing helps to soften, sharpen and generally tidy up any imperfections. Using online tools you can sharpen, blur, soften and lighten shots, adding to the quality. Be selective in the images you use, and only include those that show the good features of the property. All the images used should tell a story and add value to the property – you want to show off as many features as possible in the most appealing way
  9. Take a photography course. If you plan to take your own photos and know your skills are not up to scratch, there are photography courses run at adult education centres all over the country, and are the best place to start learning about taking better pictures.
  10. Use the services of a professional photographer. Good quality photos can make the difference between your rooms renting quickly or not. With a one-time investment in professional photographs, you can re-use them each time you come to let the property. Even if your agent offers to take photos, I would still recommend you take a series of your own. Then you can decide which ones are of a higher quality for advertising purposes.

For more fabulous tips please come along to one of our brand new ‘Get To Know HMO’ events – see the website for more details:

www.hmosuccess.co.uk

Top 20 Questions for your Potential HMO Agent

If you’re considering HMO’s as your next property investment, have you thought about how you will ongoingly manage them?

If you intend to use an agent, how do you know how to benchmark them against each other?

Top 20 Questions to ask your potential HMO agent…

1. What experience do you have in renting out properties like this HMO?
2. What is the type of HMO you specialise in?
3. What is the average room rent you achieve?
4. What is your average void period?
5. What is your average type of tenant?
6. How do you advertise the properties?
7. On average how long does it take you to rent a room?
8. What percentage of rent advertised do you achieve?
9. Do you rent any licensed HMOs?
10. Are you the manager of any licensed HMOs?
11. What does your service actually include?
12. How do you deal with maintenance and repair jobs?
13. How do tenants contact you for emergencies?
14. How do tenants report issues or general queries?
15. How often do you/your team visit the property?
16. How do you deal with rent arrears/missed rent payments?
17. How do you ensure the cleaner is managed well?
18. Which KPIs do you gather and supply to your clients each month?
19. What is your inventory process?
20. What advice would you give to an HMO landlord?

Get Organised with Viewings

If you know that the returns in your area are not what you’re looking for, choose another area. Don’t stress too much about finding your goldmine area just yet. One will appear.

However, you need to trust and follow the process first. Learn HOW to follow a process for sourcing and viewings so that when your ideal area becomes obvious, you are ready to pounce! Creating a system so that you regularly contact agents and vendors, organise viewings and follow-up is key to your actions if you’re going to find deals.

Stay Ahead of the Winter Weather for Property Success

A survey from online letting agent upad.co.uk, which surveyed 4,000 landlords, showed that nearly half of landlords fail to carry out routine maintenance checks before Winter sets in. The impact of failing to prepare for the bad weather can be huge, especially if your property is an HMO. Frozen pipes resulting in no heating and water, and then water leaks and further problems lead to unhappy tenants who may choose to move elsewhere.
Our maintenance team carry out monthly checks on all our properties, but every quarter they run a more detailed assessment to identify and prevent longer term problems. Here are my suggestions for areas that you need to include in a routine check (or make sure your managing agent does)!

1. Gutters, drains and roofs
Leaves and debris can quickly cause water damage if they’re not cleared regularly. I would recommend that every 6 months someone needs to go up on a tall ladder and check the state of your gutters and downpipes, clear the debris and run a hose of water through them. Make a similar regular date with your roof. Loose or missing shingles may lead to leakages with rain or melting snow, and flat roofs may be prone to leaks after heavy rain.

2. Trees and external objects
If you’ve got a tall tree or foliage that overhangs the property, check whether this needs to be cut back or pruned so that in high winds there’s no risk of damage to the house. Having deciduous trees near to the property can cause other problems such as root growth damage and leaf pile up, so it might be a good idea to assess whether this is the right time to remove a tree altogether.
The television aerial can also get dislodged in high winds, so it’s worth having a look to see whether it is securely lashed to the chimney stack and can withstand some force from the wind.

3. Heating and lighting
Boiler failure is one of the most irritating and costly issues to deal with and can cause real upset with tenants – understandably. Have your boiler serviced at the end of October to flag issues early and consider whether you could add boiler insurance to your policy for extra cover.  You may choose to use a service plan to ensure you have back-up should the boiler fail. Alternatively find a reliable local plumber who is happy to do emergency calls at an agreed price. Furnish your agent with full boiler instructions and a detailed guide as to how to re-set it or top up the water levels as this can sometimes be the issue. Also make sure your tenants know who to call if anything goes wrong.
Heating woes are not all about the boiler, however. While three-quarters of landlords who carry out winter maintenance check the boiler, only half remember to do a health check on the pipes and radiators too, according to the upad.co.uk survey. Bleeding the radiators and checking for leaks across the property ensures the whole system will work more efficiently.
Using a remote thermostat like Hive from British Gas or Inspire will allow you to control the heating remotely. This means that you can set the property’s heating to come on regularly each day. Ensure your tenants understand the thermostat set levels and what to do if they want to change the heating settings.

4. Condensation and mould
Condensation can be a major problem in the winter months and regular room checks will allow you to see whether this is occuring. Air flow through the property is key to reducing humidity as is the use of extractor fans. Check that all extractor fans are in use and working properly, and remind tenants of the importance of good ventilation.

5. Alarms and security
Every habitable floor of a rental property must have a working smoke alarm – and any room with a solid fuel appliance (eg, a working fireplace) should be equipped with a carbon monoxide alarm. While testing your alarms, check the burglar alarm is working for added tenant reassurance on dark nights. If you have an outside light or PIR, make sure it stays on long enough and the range is wide enough to be of use. If your tenants have to pull bins out onto the street, or don’t have enough light to see where to put their key in the front door, their annoyance will only be exacerbated by having to wave at the external light that fails to stay on long enough to be helpful.

6. Insurance
Ensure your current home insurance is up to date and check your policy gives adequate protection for any winter-related damages. And if your property has a flat roof, it’s worth checking your insurer covers flat roof damage – most insurers do not cover flat roofs, and structures of this kind can be prone to collecting water as it can’t drain off.

Having a regular approach to maintenance is both proactive and reactive and will help you ensure that your HMO works well today and for the future.

For more tips, advice and information on running a successful and cash-flowing HMO portfolio please join my Facebook group ‘The Ultimate HMO Success System. Or alternatively you can find out more about my mentoring services at www.wendywl.uk/mentor.html

Image Credit: Getty

Education: A Dirty Word?

I hated school. I really did. Ask my parents, and they’ll tell you how much I resisted getting up in the morning, I resisted getting dressed. I resisted homework. In fact I was pretty good at finding a number of reasons why I should not have to go to school. I didn’t think that school was important, or that I was learning anything useful and I believed that the subjects were completely irrelevant to my life.

And the end result: I failed miserably at my ‘A’ Levels. A year later, with some theatrical experience under my belt, I scraped into a college of Higher Education to do a Drama degree.

What astonished me immediately, was how much I enjoyed it. I bounced out of bed in the morning. I rushed to my lectures to be there on time (gasp!). I spent time in the library, reading and applying myself. Even when I was struggling, I somehow found the focus to keep going. I ended up getting a BA (Hons) 2:1 in Creative Arts. When I phoned my parents to tell them, I think my mum nearly fainted with amazement.

What I realised was this: to learn at your best and your highest level you need to find out what intrinsically motivates you and then spend time learning this on your own terms. I chose the college I attended, I chose the course, and I chose the time commitment. Somehow these three factors had a massive impact on me, to the extent that on the day of graduation, I said “I could do that degree all over again. I LOVED it”.

Fast forward many years later and I felt as equally trapped as I had done at school. Only ironically I was now the teacher, and had a teaching role in Higher Education! In truth, I loved teaching and sparking the process of an amazing lightbulb moment where a student grasped a new concept or understood a theory for the first time. Working directly with students was what I loved best. There were much wider political and structural forces at work, though,  that meant I was often drawn into debates and challenges that had really nothing to do with teaching. I began to feel that there were no other options but to pursue this career to the exclusion of all else. Forever, until I retired. And that I resented.

Now, at the age of nearly forty, I could feel that same resistance I felt when I was a teenager. “I don’t want to get up. I don’t want to get dressed and go to work. I want a hot dinner not a packed lunch”!

I took a long hard look at my life and realised that I had stopped learning. I had cornered myself into a small place and it was time to expand my mind and my reality. As a side-line and a future legacy for my children, I had been developing another small income stream from a few single buy-to-let properties. But I had ignored it, and become rather blase about this small portfolio. This moment of emptiness with my job made me realise that the time to make a change was now. If I didn’t take the leap now (even with a job and four children to manage) I would never do it.

So I started to educate myself. I attended loads of webinars and networking meetings. I read books and subscribed to relevant magazines. I asked lots of questions and attended courses. And more courses!

And I started to buy bigger houses to convert into Houses of Multiple Occupation.

I began to apply what I was learning, and this made me hungry for more. My resistance lowered. I WANTED to learn, I wanted to read and know and I wanted to be AN EXPERT at what I did. I recognised that I was intrinsically motivated to learn how to create HMOs, how to create passive income and how to become financially free…

It’s true that for me, traditional education felt like a waste of time. Only learning what I was self-motivated to learn has ever inspired me enough to maintain my interest. Staying the course depends on you having the interest and aspiration that you feel for the subject matter.

Since that time, I recognise that I love entrepreneurship, business, communications, and people. These are the areas of life that I could study all day long.

It makes it even more fun when I apply it too.

You have to take risks when you are learning something you’re motivated to learn that’s not a school subject. People will think you’re a bit crazy, stupid or mad. No worries. Let ‘em think it.

  • Stay centred on your passion.
  • Make time for learning – theory and practice
  • Keep applying what you’ve learned to make it fresh and real (practice)
  • Take a break when you need some space to cogitate
  • Invest wisely – books, courses, materials.

And above all, find something you are intrinsically motivated to learn. Whether it’s crochet, cookery or computing. Patchwork, pottery or property. As Ray Croc, the McDonald’s owner once said ‘When you’re green you’re growing, when you’re ripe you rot’!