What can you expect from the HMO resale market in 2022?
As we’re entering into March, I’m starting to see how the year will unfold in regards to HMO values and saleability already and advising sellers about what they can expect in 2022.
Firstly, a bit about me – through my role as Director and main valuer at The Property Advantage, I have visited, valued or sold thousands of HMOs in all corners of the country. Valuing them on behalf of developers, landlords and investors who are seeking to sell the HMO/s and advising them on the key variables such as value, sales expectation, likely buyer type and if there are any advisories to iron out before they sell.
HMO sales can be hard and unpredictable – you only have to look through the auction catalogues or Rightmove to see the inconsistency of values and to figure out pretty quickly that, as a property type (tenanted HMO), there are more unsold lots, more fall throughs and less predictable completed sales.
How do you navigate these inconsistencies and better manage your potential HMO exit?
There is a definite buyer ‘type’ for up-and-running HMOs – they don’t want to develop, work with builders, deal with planning, or any other ‘risks’ (their opinion) that comes with creating HMOs. The good news for you, a potential HMO seller, is that there is more of these buyers than there used to be, and the popularity of tenanted HMOs is increasing with investors.
Understanding the mindset of this buyer type, and the pitfalls to an HMO sale/conveyance, is key to gaining the most value from your asset.
A simple checklist for any HMO seller looking to maximise their sale would include;
• Is the property well-run with a transferrable management structure?
• Is the property licensed, compliant and carrying the correct planning documents where required?
• Are the tenants settled, happy and paying!
• Is the general condition good enough for inspection and scrutiny?
Moving onto your valuation and how much you can sell for, there are three key numbers to understand and manipulate in your favour;
1. The vacant possession bricks and mortar value
2. The ‘lending’ value (what would an HMO lender say its worth?)
3. The sale value (what will a buyer be happy to pay?)
Depending on the size, income, location and condition (plus many other variables), the distance in numerical terms between the three key values above will change but one constant remains – you must be able to justify the difference between them with the USPs the HMO offers.
So, moving back to the original question…
“What can you expect from the HMO resale market in 2022?”
If you prepare your HMO properly for sale, the strong resale market, with higher than previous demand from new investors, will secure you a more reliable sale and this market, this year, is all about consistency in the HMO sale market and a move away from the ups and downs in the market between 2019-2021 where sales we high but, unfortunately, so were fall throughs, disappointments and down-valuations.
I’m not as bold as saying values are going up (or yields compressing) but I am confident of greater consistency and a more reliable exit for HMO landlords looking to sell their tenanted HMOs.
I am running an event on this subject with the rest of The Property Advantage team on 19th-20th May 2022, click on the link for more info,