Do HMOs still work? They sure do. Especially when you know your tenant inside out and tailor your build to what they want. Your rooms will never be empty again. This month Matt Baker and Niall Scott tell us how they are converting commercial buildings into high-spec HMO communities and changing the future of HMOs forever.
Matt: I’m a musician. A professional piano player. I studied music at university and have spent most of my career doing session work and working with bands. I’m currently working on an album with some amazing Afro-Cuban musicians, which is really interesting. I’m in my element behind the piano, but the thing with being a session musician is that the money is pretty sporadic. It comes in and then there’s nothing for a while, so I also set up a music school, teaching piano alongside other musicians teaching other instruments, but in terms of money there’s a ceiling to what I am likely to earn. So, about four years ago, I started looking into property as a way of bringing in more money so I could work on my music without having to worry about it being my sole source of income.
Niall: Before property I worked in the financial services industry, dealing with insurance complaints, then later telecommunication complaints. I was self-employed with no real benefits, such as a pension or sick pay, so it was always in the back of my mind that if I lost a contract or was unable to work, then I’d have no way of paying the bills, which isn’t a position I ever want to be in. I also wanted to do something a bit more productive with my life than just working a nine to five job. And that’s what led me into property investing.
JOINT SPEED AND EFFICIENCY
We both independently did some training with Fielding Financial and it was in 2015 on the advanced course that we met each other and became friends. Our investment journeys almost mirrored each other, with us each starting off investing in single lets then moving on to HMOs. Income generation was key at that time to supplement our other income.
After about a year of knowing each other we decided to do a project together. It was a simple BTL in Burnley. We quickly realised it was much easier and less stressful doing it together, so we decided to buy a couple more. We were moving a lot quicker buying together as a team than trying to do it alone, so we decided to form a proper business, Scott Baker Properties, and it’s been that way ever since.
CURRENT STRATEGY
Our current strategy is to purchase commercial buildings and houses and convert them into co-living accommodation or HMOs. We’re still all about income. We don’t sell anything.
We do high-spec refurbishments aimed at, but not limited to, the young professional market – millennials from the age of 18 to 35. People who are working but are not able to afford their own place yet.
HIGH DEMAND FOR ROOMS
HMO rooms are a hugely growing market. We know some people say HMOs don’t work anymore, but we 100% disagree with that. Demand for rooms is growing all the time, especially as landlords pull out of the market, due to everything that’s going on in this country at the moment. We find areas where there is high demand for rooms and we haven’t had any issues filling our properties. The transient nature of HMOs means there’s a high turnover of tenants, but if the demand is high you’ll have a good supply of tenants ready to take the empty rooms and it can work really well.
Nowadays people want flexibility, which could mean they’re only looking to stay somewhere for three, six or nine months. They are unable to get with a standard one-person rental, but which we can easily accommodate. We often find some tenants stay for as little as three months due to contract work or similar, but others stay for longer with the average being around nine months, depending on their job or situation.
We aim to have lettable rooms that we can just keep filling, so when someone moves out, someone else moves in straight away. Our voids are pretty low, in fact, the biggest void we’ve had on Arpley Street (case study one) is about a week.
MANY LOCATIONS GIVE US A SECURITY BLANKET
We invest in several different locations in the UK, starting out in Burnley (Niall) and Warrington (Matt). There aren’t many large employers in Burnley, which isn’t ideal for HMOs, so it didn’t make sense to start a HMO portfolio there (although we still buy BTLs in Burnley). And we have several HMOs in Warrington now, so were getting to the point where we were competing with ourselves, so it made sense to move on to pastures new, by identifying areas where demand is high and stock is low, such as Coventry, The Midlands and Stockport.
It’s important to us not to put all our eggs in one basket, as if something were to change in that particular market, it would severely impact our portfolio and obviously our income as well. So being a little bit more diverse gives us a bit more of a security blanket in case anything happens in one of the areas.
FINDING DEALS
We do all our sourcing ourselves and most of our properties to date have come through estate agents. So we spend a lot of time building good relationships with agents in the areas we’re investing in. It can take a while to build up these relationships but now we’re more established we get properties coming to us before they hit the open market, which is great. And we try and act on all deals as quickly as we can to get them across the line. Agents appreciate this and that keeps them bringing more deals to us.
We do quite a bit of networking as well and one or two deals have come to us that way, just by people talking to us, finding out what we’re doing and saying: “Oh by the way, my friend has a property for sale, are you interested?”