Written by Daniel Latto in Property Sourcing

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July 19, 2023

In an increasingly competitive property market, two traditional long term property sourcing strategies stand out due to their potential for substantial returns over time: Below Market Value (BMV) properties and Houses in Multiple Occupation (HMOs).

The current climate, with shifting economic and market dynamics, is fostering unique opportunities in these areas that investors should capitalise on.

Notice, I didn’t say rent to rent.

My belief on r2r, is that it’s short term, not long term, and not what we’re looking at here, so we’ll miss out any discussion on rent to rent for the time being.

The Value of BMV Properties

BMV properties, as the name suggests, are properties available at a price below their actual market value. This is generally due to the seller’s urgent need to sell, which may arise from financial difficulties, divorce, or relocation. Given this rush, sellers often dispense with their property quickly, bypassing a protracted and complex selling process.

Right now in particular, with the UK Property Media playing down house price growth and claiming massive drops, there’s a lot of fear in the market place.  Plus, an increase in seperations due to the massive increase in all the other everyday costs, there’s an opportunity out there to pick up some great Below Market Value Deals.

Investing in BMV properties offers an immediate return in the form of “instant equity”. For instance, a property valued at £100,000 on the open market could be bought for £75,000, yielding £25,000 instant equity for the property investor. This advantageous arrangement is the primary appeal of sourcing BMV properties.

The current economic climate, affected by uncertainties, is leading to a rise in such opportunities. However, thorough due diligence is necessary to verify the market value and potential of each property. Investors need to be vigilant and astute in sourcing and selecting such properties to ensure maximum return.

The High Yields of HMOs

HMOs, on the other hand, offer another lucrative investment opportunity. They add significant value for investors by enabling them to lift the rental yield through reconfiguration. Depending on the model chosen — shared facilities or full ensuite — and the extent of changes made, HMOs can generate substantial returns.

The success of HMO investments depends on several factors: the suitability of the floor plan for an HMO, the extent of necessary refurbishments, and the chosen HMO model2. For instance, while the ensuite model may demand a higher refurbishment budget, it also enables the creation of high-quality rooms that secure the best rental returns. It can potentially yield a 20-30% return on capital.

Furthermore, the rising demand for affordable housing options, particularly in urban areas, contributes to the profitability of HMO investments. High occupancy rates and rapid resolution of voids often result in gross yields of over 20% annually.

Now is Great Time To Start Property Sourcing

The current market presents ripe opportunities for investors, but why now? The main reason is competition. The number of active private equity firms and the levels of “dry powder,” or unallocated capital, are at an all-time high. This increased competition is prompting many firms to seek new strategies for deal sourcing.

Now is the time to exploit data-driven approaches in sourcing BMV properties and HMOs. By employing timely, accurate financial data to substantiate claims, guide research, and boost efficiency, investors can stay ahead of the pack. Besides, given the availability of digital platforms, it is easier than ever to source and assess potential properties.

Additionally, the current economic climate may increase the availability of BMV properties as more homeowners find themselves needing to sell quickly. Simultaneously, the demand for affordable housing options like HMOs continues to grow, particularly in urban areas.

For property investors looking to maximise their returns, now is an excellent time to start sourcing BMV properties and high-yielding HMOs.

The availability of these opportunities combined with the ability to leverage data-driven strategies makes for an advantageous investment climate.

Remember, however, that every investment carries risk, and it’s important to conduct thorough due diligence and research before making any property investments. Smart, informed decisions are the key to maximising profitability in property investments.

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Is Now the Time to Start Sourcing Below Market Value Properties and High Yielding HMOs for Property Investors?

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