Over the jubilee, I was asked the question “how will the recession affect you?”.
How will this affect HMO/Coliving owners (these are my thoughts. Obviously, I am not Andrew Baily…so please take with a pinch of salt).
HMO asset prices will increase. Scared money will be looking for a safe home – and there is no safer home than a well-located, well-run property that yields 15% like clockwork
HMOs will have a greater tenant demand. Rents for HMO rooms rise faster than rents for single lets. Your demographics might even change, with the rise of remote working.
Good HMO development deals will be scarcer. There will be a lot of competition for deals, as money tries to find shelter in property. If you invest/develop/JV with others, be prepared for an influx of enquiries – but also be weary – you might not be able to achieve the yields you have done in the past.
Refurb/maintenance will be more expensive. Refurbs will not be as affordable as they once used to be. Steel, copper & timber prices are not exactly friendly.
Interest rates will continue to rise. Central banks will try and use this as a lever to combat inflation. IMO this is a tad silly, because most of the factors that are affecting inflation are global, not local.
So what to do? (I caveat this by saying I am a frugal guy – so maybe not to everyone’s appetite).
If you’re comfortable with your portfolio size - I don’t think there will be a greater return than simply paying down a mortgage and slowly de-levering.
Remortgaging your existing debt at lower LTVs is another way to drive down existing interest payments and running expenses.
If you want to grow. Keep your powder dry. Do the leg work. Go for deals you know are profitable even in a worst-case scenario and you are confident with. Mistakes in this environment can be costly.
Keep close eye on meter readings, educate tenants, publish high bills and gently remind them – that potential rent increases are linked to the usage and it is within their interests to be sensible.
The pandemic rents must return to normal. All those deals you did during the pandemic – should be ending soon.
Renegotiate fees where you can. None of your suppliers will thank you if you end up having to sell up, so ask them to help you run a profitable business (accountancy fees, letting agent fees, cleaning fees, software etc)
Last but most importantly – VOIDS ARE YOUR ENEMY. Make it your 2022/23 goal to never hit a void. Your search for a new replacement tenant must be front of mind, 100% efficient, relentless & thorough. Tenant turnover is high, the best tenants make decisions quick and are attracted to efficiency & professionalism.
Make sure your tenant checks out by the end of the day and the new tenant is lined up for the next day. That is not an excuse to place a suboptimal tenant, the only thing worse than a void – is a problem tenant. Make sure you are doing full screening check of all tenants (I use NRLA).