How to Sell HMO Property: The Ultimate Guide 2022 ©

How To Sell An HMO Property: The Ultimate Guide (2022)

SELL AN HMO PROPERTY

If you’re looking to sell HMO property, then there are a number of factors you need to consider to enable you to extract the maximum value out of the HMO property in any given market.

Most landlords that own HMOs, have acquired them over many years and thus typically the properties are all in different conditions.

The page lays out the options and also gives some ideas of what to expect when looking to sell an HMO property.

HMO buyers

There are a few different types of buyers for HMO properties, the main ones being property funds, and private HMO investors and there are pros and cons of both types.

Private investors tend to be mortgage buyers and so tend to take longer to transact. They normally require surveys & HMO mortgage valuations to take place. Depending on the property this can take anywhere from 3 months to 12 months.

Property funds are normally cash buyers and so don’t take as long to transact typically. They normally require structural surveys, but don’t require HMO mortgage valuations to take place.

Deciding your target timeframe will allow you to choose your pricing in order to attract one or another type of buyer.

Tip: Understand the number & types buyers in this market when considering pricing.

sale timeframes

HMO property sale transaction times really can vary depending on the size and complexity of the property but it goes without saying that, as expected, the larger & more complex the property, the longer the transaction time.

There are 2 timeframes to be aware of; sale agreed time frame, and transaction timeframe.

Both of these timeframes need to be taken into account separately and together. Understanding the process is a key element to making good decisions when it comes to selling an HMO property.

Also, considering all the moving parts associated with HMO transactions, what’s important is having someone to manage the process from start to finish. Sales progression can be a valuable tool and is best left to professionals.

It normally costs, circa £250 per property, payable on completion only, which means if the HMO property doesn’t transact, there is no charge.

Example HMO Portfolio Sale Timeframe

Tip: Nominate a target sale agreed time frame, and also a target total transaction time. If priced correctly, representing fair value for a purchaser, a portfolio should go sale agreed within 56 days.

HMO VALUATIONS

HMO valuations are subjective and difficult.

This is due to the lack of direct and local comparable properties, as a result of HMOs representing a small proportion of the property transaction volume in the UK.

Everyone has their own opinion. Your accountant, your long-lost aunt, the guy down the pub. None of these opinions matter.

Also, make sure to check out our Ultimate Guide to HMO valuations for further information

Ultimately, the only relevant opinions on price are;

If all 3 of those parties manage to conclude then a successful transaction can take place.

Factors that impact HMO property valuations.

1.  Availability of comparable sold HMO properties

A) Whilst HMO comparables are harder to find if there is evidence of recent, similar, local properties selling, then this is the best evidence to guide valuation.

B) Surveyors/Valuers are not HMO specific. Out of every 100 properties that any given surveyor might value per year, on average only 1-5 of these are likely to be HMOs, which is a fair representation of the market. The consequence is that they find them harder to value, and so often are conservative in their approach.

2.  Planning permission use class.

Compliant HMOs should have the correct planning documentation/use class.

I. If between 3 and 6 units of accommodation, an HMO should have a C4 planning certificate.

II. If 7 units of accommodation or above, an HMO should hold a Sui Generis planning certificate.

3.  Property size (sq ft) & no of bedrooms/units

Good size rental units are more favourably viewed as long term rental options by surveyors as they understand that smaller units tend to lead to higher tenant turnover, and thus increased maintenance and voids.

4.  Presence of an article 4 directive.

Article 4 directives restrict the ease with which new HMOs can be created and thus sometimes can lead to an increased investor demand for existing HMOs with the correct use class (C4 or Sui Generis).

5.  Location

Well located HMOs with a good proximity to local amenities and transport links in population, education or employment centres are favourable.

6.  Condition

A) As with single dwellings, HMOs properties that are newly refurbished or developed can expect to achieve the highest sale value.

B) Good vs Bad.

Note: Understand and use all factors available that may affect HMO property valuation and optimse to enable max value to be extracted from any potential buyer.

Note: The role of the agent is to introduce suitably qualified potential buyers and then squeeze every possible ounce of value out of their offers. It is NOT to accurately predict the price. Valuation ranges on HMOs can be broad due to the lack of direct comparables.

pricing

Price & speed are highly correlated. If higher speed and certainty are required, then a lower price could be achieved. If lower speed and certainty are required, then a higher price could be achieved.

When looking to price an HMO property for sale, take professional advice to get an idea of the current market conditions and more importantly the availability of willing and able HMO property buyers to actually be able to complete a transaction.

Local agents typically sell 99% single dwellings and thus don’t have access to large fund buyers or HMO property-specific buyers so best choose a dedicated investment agent.

Tip: Price your HMO property portfolio, making it attractive to encourage potential buyers to be incentivised to work towards your target time frame.

preparation & presentation

We have seen HMO properties come to us in all different shapes, sizes, and conditions, and having sold over 600 HMOs now in 8 or so years we know what helps make a successful transaction.

Preparing an HMO for sale is incredibly important in order to maximise the potential value that can be realised from a sale.

The best way to extract maximum value is to reduce friction for any potential buyer, by having a complete document set available, thus reducing friction and giving peace of mind.

If looking to sell an HMO property at maximum potential value, a structured organised process is recommended. This can take some time upfront but in the long run, it tends to pay dividends with fewer headaches and a smoother transaction.

Preparation

  1. Refurbish everything & get the HMOs photographed just after refurbishment.
  2. Collect all details and present them in such a way that allows for total
    transparency.
  3. Get your documents together in a pack for each property;
    • HMO Licence Certificate
    • HMO Planning Certificate
    • HMO Floor Plan
    • Building Regulations Certificate
    • Tenancy Agreements
    • Fire Risk Assessments
    • Fire Alarm Certificate
    • Electrical Safety Certificate
    • RICS Valuation Document (if available).

Presentation

See below for a good example of how to stage and present an HMO for sale to achieve maximum value.

 

Tip: Get max value by refurbishment, and collecting the full document suite prior to marketing.

SUMMARY

Lots of things to consider when selling an HMO portfolio but here are some highlights.

1. Understand; that valuation is subjective, and the role of the agent.
2. Get familiar with factors affecting HMO portfolio valuations.
3. Set your target time frame for getting the sale agreed.
4. Understand the buyers for HMO property portfolios
5. Price the HMO portfolio for sale according to the target time frame.
6. Prepare & present your HMO portfolio in the best possible way to maximise the potential value.