How To Value HMOs in Any Area With Richard Nicholls
Last updated: 27 Sept 2024
Meet Richard Nicholls
In this insightful episode of Deal Finder’s Corner, Richard Nicholls, an HMO valuation and sales expert, shared his wealth of experience in valuing and selling over 750 HMOs across the UK. Richard’s deep understanding of the complexities involved in HMO sales has made him a leading figure in this field, with a personal approach that adds immense value to both seasoned and aspiring property investors.
This blog covers the key takeaways from Richard’s discussion, focusing on how to value HMOs effectively, what factors influence their marketability, and how to prepare for a successful exit. Whether you’re new to HMO investing or looking to optimise your portfolio for future sales, these insights will help you maximise your property’s potential.
Understanding the key variables of HMO valuations
Richard highlighted that several factors affect the valuation of HMOs, such as location, property condition, and rental income. “It’s crucial to grasp the difference between bricks-and-mortar value and commercial value,” Richard stated. The property’s size, the number of beds, the planning class, and tenant type also play significant roles in determining its overall worth. For an HMO to be highly marketable, everything from compliance to condition needs to be optimised.
For example, the local rental yield plays a critical role in how properties are valued. Richard explained, "Different regions across the UK will have their own yield expectations. Understanding these variations is key to calculating the potential return on investment (ROI)." He provided examples of yield rates in various locations, including areas like Doncaster, Milton Keynes, and Derby, helping investors see how their property’s location influences marketability and pricing.
Actionable tip:
Before considering a sale, make sure all your compliance certificates—such as fire safety, gas safety, and HMO licences—are up to date. This ensures the HMO is legally compliant and easier to market.
The impact of Article 4 on HMO values
Article 4 areas, where additional planning permissions are required for HMOs, often present opportunities for higher valuations due to the restrictions on new developments. Richard noted, “Article 4 areas cap supply, which means demand can increase, pushing up HMO values over time.” However, it’s essential to be mindful of when Article 4 is introduced, as this can initially flood the market with new properties.
This is particularly relevant in towns and cities where high demand and student populations drive up property values. Richard shared, "The introduction of Article 4 doesn't immediately increase HMO prices, but over time, the reduced supply of new developments can lead to increased demand for well-managed, compliant HMOs."
In Derby, where Article 4 is about to be introduced, Richard predicts a dip in HMO values as developers rush to complete conversions. However, over the long term, the restrictions will likely enhance property values as the market stabilises.
Preparing HMOs for sale: Compliance and optimisation
Preparing an HMO for sale goes beyond just meeting basic standards. Richard explained, “The key to optimising HMO value is ensuring the property is not only compliant but also systemised for efficient management.” Simple steps like upgrading insulation, installing energy-efficient systems, or ensuring consistent maintenance can significantly increase the property’s appeal.
He also emphasised that optimised running costs and low-maintenance systems can make an HMO more attractive to potential buyers. Energy-efficient features such as solar panels or heat pumps may not always be essential but can add long-term value, especially in today’s eco-conscious market. Buyers are increasingly looking for properties with lower operational costs and modern amenities, making these features worthwhile for sellers to consider.
“It’s not about finding a buyer—it’s about making your HMO more salable, which comes from optimising it right from the start.”
Conclusion
Richard Nicholls emphasised that understanding the specific variables in HMO valuations—such as location, compliance, and tenant type—is essential for any investor. Optimising the property with future sales in mind can lead to higher returns, and knowing when to sell, particularly in Article 4 areas, can give you a competitive edge. Additionally, ensuring your property is fully compliant, well-maintained, and energy-efficient can increase its salability and market value.
To learn more about HMO valuations and how to optimise your portfolio for maximum returns, watch the full episode of Deal Finder’s Corner with Richard Nicholls on YouTube. Subscribe for more expert insights on property investment.
Additional Resources
30+ HMO deals in the last 18 months with Property Filter conversation with Phil Bygrave
Take Your HMOs to the Next Level with Expert in Co-Living Matt Baker
Top HMO Property Portfolio Management: Insights from COHO Co-Founder Helen Turner
Fast-Track Property Success with Co-Living HMOs with Stuart Scott
