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5 biggest HMO mistakes in property investment | Vlog #010 - YouTube
Channel: Saj Hussain
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i'm sure you've realized how profitable
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hmos can be
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especially if you've been watching any
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of my previous vlogs making a thousand
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pound a month from a single house
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is not unusual however there are many
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mistakes
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that you can make as an investor and a
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landlord in hmos in this video
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i want to share with you the five
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biggest mistakes that you must avoid
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if you're doing hmos
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[Music]
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hi i'm sadisein and if you're new to my
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channel this is where i share with you
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my 15 years
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of investing knowledge and experience to
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ultimately help you get further faster
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in your property investing journey
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and if you'd like more videos like this
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make sure you hit that subscribe button
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so that you get notified when i'm
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releasing videos just like this
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so i've been investing in hmos for about
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10 years now
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in and around birmingham and i've made
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many mistakes during that time
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and here i'm picking out the five key
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ones that i want to share with you
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but make sure you watch all the way to
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the end because i have a bonus one
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for you as well
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[Music]
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the first and biggest mistake that i see
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being made
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is not understanding the customer and
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their needs so what do i mean by the
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customer
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well the customer is ultimately the
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person that's gonna be paying you each
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month ie your tenant
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the tenant that's gonna be living in the
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property and what it is that they're
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looking for what their needs are
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as opposed to what you want you want
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cash flow you want a nice house you want
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it kept tidy
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but is it what your tenants are looking
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for
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in terms of what you're creating
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[Music]
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when i'm speaking to potential investors
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and landlords or already in property
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and they're looking to do hmos and i'm
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asking what type of customer are you
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creating this property for
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and the most common answer i get is
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professional tenants and i say why why
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do you want professional tenants
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i want professional tenants because i
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look after property they're nice people
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they'll pay the rent on time
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yeah most probably that is the case but
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actually it doesn't necessarily mean
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that that model works everywhere is
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getting the right type of property setup
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for the right type of tenant
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is really important for instance the
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house that we're in now is a six person
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house here we were just in the kitchen
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kept nice and tidy for six people
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they're all professional tenants they're
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all at work
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this room has just become available in
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fact it became available yesterday
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and the new tenant is moving in tomorrow
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so we had a little window of opportunity
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to do some filming at this house to show
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you how i set up my house shares
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so most of our tenant portfolio is
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professional tenants what i call white
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color and also a mixture of some blue
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color
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which i'll show you in a few moments the
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other type of house shares we have a
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blue collar one so for example this is a
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white collar one
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and i'll show you the difference that we
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have on the blue collar one but they're
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still working tenants
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however what i don't have is house
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shares for
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say students i don't have house shares
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that have
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um people that are not working that are
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say on benefits predominantly
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i don't have house shares for say asylum
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seekers why because i've chosen to niche
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in that particular category
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but that also means we really understand
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the customer and their needs
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right now we've come across to another
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professional house share
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however this one is mostly blue color
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tenants whereas the one we just came
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from
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was white collar tenants so what's the
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difference well
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although they're both professional
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households what we term as professional
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high shares which mean
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primarily our tenants are all working
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tenants the white collar tenants tend to
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be those on a higher salary
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and the ones on a blue collar or what we
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term as blue collar will be those on a
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slightly lower salary so
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for example these rooms are very similar
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in terms of size one we just saw on the
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one we're in now
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however the one we just came from is
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probably about a third
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30-ish percent more expensive than this
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one that we're in right now
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this one doesn't have the ensuite room
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either
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[Music]
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we've also come across to this house to
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talk about mistake number two
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which is getting the location right of
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the house
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so i see many investors purchasing a
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property
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because the numbers look amazing the
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floor plans look fantastic
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however they haven't considered is it
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the right location
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for the type of customer that they're
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trying to attract
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here right now we are just on the
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peripheries of a very expensive and
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desirable location which we talked about
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in the last vlog which we'll link up
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here now here
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we're probably maybe 50 yards from the
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boundary
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of a different postcode which means we
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can still benefit from the higher prices
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that achieved in that location over
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there
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versus if we went say another half a
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mile in that direction
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within the same postcode we would not
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get anywhere close to the same prices
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or attract the type of tenants that we
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normally have in a house
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like this so getting the location right
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is fundamentally important
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because if you're for example targeting
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students
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you're going to have to be very close to
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a university but that's not enough in
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itself
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close to the university you'll have
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primary secondary and tertiary locations
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your primary locations are you literally
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fall out of bed and within five minutes
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you're at the university gates
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if you've got maybe a 10 or 15 minute
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walk that would be a secondary location
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and a tertiary location may be a
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20-minute plus walk or a bus ride
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now if we just take birmingham for
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example and how that's evolved over the
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years
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there's so many purpose-built student
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blocks that are now being built
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which has damaged the tertiary market
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and sucked up a lot of the demand that
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was in the primary and secondary
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so the tertiary properties are now
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having to be repurposed because they're
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actually too far
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from who their primary customer was
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which is essentially students
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so here with our professional housing we
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think about who is the main employer
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who are the big employers so in
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birmingham we're fortunate we've got
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lots of big employees but if you're
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looking at a location where you are
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dependent on working tenants you think
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about where is it that they're working
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how can that market change so for
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instance one of the big employers in
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birmingham is jlr jaguar land rover
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however if we were completely dependent
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on that one only employer
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and if there was a change that they made
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which sometimes big companies do
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that can completely destroy our business
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model
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so it's important that you've got more
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than one customer type in the location
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that you're thinking
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that makes the model work so having
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transport links
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nearby so whether it's buses trains
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tubes or whatever it might be trams
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and uh there may be facilities for
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parking or be able to
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drive straight into the location that
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they need to get to work wise
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all of these things are important for
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your tenants it's really about putting
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yourself in the shoes
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of the tenants and what they might be
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looking for and looking through this
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through their eyes rather than yours if
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you're finding these useful so far let
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me know what you think
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the biggest mistake people make within
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hmos put it down the comment section
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below and make sure you're hitting that
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subscribe button as well so you're
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getting more of these kind of videos
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so let's jump into mistake number three
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that i see
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being made and that's the lack of
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understanding around
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planning and also licensing and also
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understanding that they're two
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very different things so right now in
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this house that we're in
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this is a seven person hmo which is
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licensed
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and it has planning classification of
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suey generous so what that means it's
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got a special planning classification
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right now so we can you have more than
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six people because once you've gone
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beyond six
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it has a different category but also
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requires a license for it to be suitable
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for that number of people
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we've now come across to a different
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house with another similar size room
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however in this house we don't have
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planning permission
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and we don't have a license so that's
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just to confuse you right
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well let me explain what i mean this is
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not unusual for it to be a misconception
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around licensing and planning so let's
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try and break that down first of all
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let's look at them in isolation
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with planning permission if you have up
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to
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six people living in the same house are
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you from one to six people or two to six
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people in the same house are unrelated
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to each other
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then that's normally done without
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requiring any planning permission
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so you can take what's a family house
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which is a planning classification of c3
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move it across to c4 with no planning
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required
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however if you decide to have more than
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six people then its planning
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classification needs to change
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from c3 or c4 to sue generous
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which means more than seven people seven
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people or more and normally a planetary
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a planning classification of its own
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[Music]
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[Music]
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this is generally speaking however your
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local authority might have what's called
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article 4 article 4 is the removal of
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seven per certain
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permitted development rights permitted
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development rights have been able to do
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modifications to say a house without
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going through the full planning process
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so what we just talked about moving from
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c3 to c4
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can be done under permitted development
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right with no planning required however
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if you go to 7
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people then you need planning permission
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unless as i mentioned there's article 4
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then in that case if you've got three
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unrelated people
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you would need to apply for planning so
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birmingham for example has recently
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uh recently implemented even article 4
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into the area which means now if you're
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creating any more houses like this one
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here
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with four people in it it would require
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planning permission because this one was
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set up before the date
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kicked in which was in june it has
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what's called grandfather rights it
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doesn't require planning permission
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the cost of a license application can
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vary from about 500 pounds to 1500
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pounds
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depending on your local authority it's
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really important to understand when a
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license might be required when planning
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is required or sometimes
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where both are required as well in fact
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if you think would be useful let me know
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in the comment section below and i can
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do a separate video
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talking more specifically about planning
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and also about licensing because there's
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different types of licensing
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as well mistake number four that i see
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being made
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is a lack of understanding around how
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much management hmos actually require
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they are much more intensive than say a
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family letter single letter or a flat
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so these things need to be considered so
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what i tend to see is people fall into
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two camps
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either they tend to abdicate their
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responsibility don't be on somebody
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maybe a managing agent
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and just not interested because they
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want the passive income or they're on
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this side
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where they're over controlling and
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micromanaging the process and almost
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being a mother hen
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in the house so it's important to get a
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balance in terms of how
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recognizing first of all how much work
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is involved in managing a hmo and then
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ensuring you've got the right people
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to manage that house so what i did a
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number of years ago when i couldn't find
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the right people is to set up our own
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hmr specialist
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letting agency to manage properties
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where we've made over 500 rooms
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around birmingham this not only gives us
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the expertise
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around managing these type of properties
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but also the data in terms of where the
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demand is
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what requirements are what the price
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points are as well
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[Music]
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let's now talk about mistake number five
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however just before we do that
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i've got a bonus one for you number six
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which we'll talk about in a few moments
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so make sure you watch all the way to
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the end
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so what's mistake number five mistake
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number five is
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failing to do thorough due diligence on
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your potential applicant or the
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potential tenant
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that's going to be living in the house
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it's really important not only to the
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basic financial checks like the credit
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check
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and employment check like many agents
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and landlords do however you want to see
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the person's going to be a good fit for
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the other people that are living in the
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house
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because ultimately remember it's a
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shared house one of the other things
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that we do in terms of financial checks
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is not just a basic credit check
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because sometimes they won't tell you a
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great deal particularly if somebody for
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example let's say they're
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a doctor they've been in the country
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three months they've just arrived
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they're going to have a great income but
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they're not going to have a credit
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history so they fail a credit check
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you need to take a common sense approach
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about your individual applicant
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and make sure you interview them to
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understand them and see if they're going
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to be a good fit
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one of the things that we tend to do is
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ask for three months of bank statement
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so what that does tells you a huge
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amount
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about the individual how they manage
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their finances how they've been paying
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their rent on time previously
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and also the income that they're getting
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as well so you can ensure
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that they can afford the rent we're back
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in the office now with
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bonus mistake number six but just before
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we do that
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let me know what you think of the
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mistakes that we shared so far if
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there's any other ones you think should
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have been on the list make sure you put
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in the comment section below
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and if you like this video then make
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sure you hit that like button
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and of course subscribe as well so that
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you're getting
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notified when we're doing these videos
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so let's just jump straight into mistake
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number six your bonus
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one here and that's scrimping on the
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internet connection
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so what do i mean by that well if you
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remember dialogue
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that's what some people's internet
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connection is like and potential tenants
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and applicants these days
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the quality of the internet is so
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important they might be working from
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home
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they might be using for gaming there'd
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be all kinds of things that they're
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looking to use
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the internet for and you've got maybe
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four five six people
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on that same connection and i see people
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looking for the cheapest possible
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connection
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i think what you should be looking for
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is the best possible connection you can
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so we typically spend about 50 pounds
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and we look for the fastest connection
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available
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on that street so that's when it's
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shared not only download
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but upload speeds as well so that you
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don't get any complaints about the
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quality of the internet
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i thank you so much for watching all the
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way to the end i hope you've enjoyed
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this video
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and i look forward to seeing you again
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next week on next week's vlog
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[Music]
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you
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