By their very nature, i.e. size and the fact that they are for multiple tenants (or at least three non-related individuals), HMO’s can be expensive to refurbish. And it’s not only construction and installation costs, such as putting in a new bathroom, or the redecoration costs, that drain your cash. No, there is also the licencing, planning and surveying costs etc to think about. Then there is the marketing and reference checking, and management too if you’re looking at very passive income.
So, when it comes to funding an HMO refurbishment, you are going to have to arm yourself with a large chunk of funding. Luckily, there are quite a few routes you can go down to access that, some of which, we have listed below.
A HMO Mortgage
These are available only through specialist lenders, who are usually reluctant to lend to ‘newbies’ in the field, i.e. those without the background of previously running an HMO. Interest rates are higher for a HMO mortgage than for a standard BTL mortgage, typically 3% compared to 1.7% – 1.8%. That’s chiefly because HMO lending is seen as a bigger risk.
Bridging is short-term finance, usually between three months to two years, with a high-interest rate so you’ll want to pay the loan off as quickly as you can. There are also ‘entry’ fees of around 2%. Once your refurbishment project is complete, you might then want to switch to a HMO mortgage for cheaper borrowing.
Joint Venture Capital
It might be possible to team up with an investor who is keen to get into the HMO property market but doesn’t have the time to organise the refurbishment etc. They could make up the financial shortfall for you, meaning that not all the profits would be yours.
Loans from Family and Friends
This type of loan can be very handy as usually family and friends don’t want interest, or at least not as much as the big banking lenders. However, it can put a strain on a relationship, especially if your refurb is taking longer than expected and the lender starts wondering if they’re ever going to get their money back. It can also change the nature of a relationship, making you feel ‘beholden’ to the lender.
All our franchisees at Sourced have exclusive access to funding via our own in-house lending facility, ie the Sourced peer to peer platform. This gives franchisees financial freedom by allowing them to borrow up to 100% of your HMO refurbishment costs.
Our expert team helps our franchisees with the due diligence to make sure the figures match and that both the lenders and the franchisees will gain a profit at the end of the project. As most of our team have a combined experience of 100 years in property investment, it’s fair to say that we’ve been there, done that and know how to help other investors to build a profitable property portfolio.