How to Value HMO’s

HMO Valuations

 A lot of investors have been asking about larger HMO’s (7 beds upwards) and I thought I would send out a few pointers to assist.

If you are making decisions on whether the deal stacks up or not especially from a valuation perspective.

From a criteria point of view –

You normally need to be an existing property owner

You normally need 1-2yrs letting experience

You will have needed to at least applied for your HMO Licence

The correct planning needs to be in place 

Usually need a value of a minimum of £100k although some exceptions

Ensure that you are not over-committed with your personal debt.

Please note, if remortgaging in the first 12 months of ownership, not all lenders will lend a straight 75% of the commercial valuation.

They tend to want you to leave some money in the deal and give you a % of the purchase price and monies spent instead. (There are exceptions to this)

If you want to get a commercial valuation (Income-based) then there are approx. only 6-7 lenders that will consider this.

Typically, albeit there is no hard and fast rule, the valuers will look at your annual gross rents and deduct 15-30% for repairs, maintenance, void periods and management. (We normally would use 25% to be on the safe side).

Then you would apply an income multiple which can be between 6-12 dependent upon the area, demand and other factors. (Again, to be on the safe side, we would use 8-9 unless you have any hard evidence of other similar HMO’s)

Rates would tend to start from 4.35% with the commercial lenders and can go up to 6.25% dependent upon circumstances with arrangement fees between 1.5-2%.

If you wanted to stay with buy to let lenders, they will only do bricks and mortar valuations and usually not lend on HMO’s with more than 8 beds. Rates starting as low as middle 2%.

Away from 7 beds HMO’s, your 3,4 and 5 bed’s will only get a brick and mortar valuation.

Your 6 beds, depending upon the valuer’s comments stands a 50/50 chance of getting a commercial valuation depending upon how you have configured the property, the cost of putting the property back to a standard residential house and any other market conditions.

You do have lenders who give a Hybrid valuation which is halfway between a commercial and bricks and mortar but there are not many about.

Don’t hesitate to get in touch if you need more help.

Call 01625 548248 or Click Ask Richard HERE