Want To Get £10,000/pcm From HMOs? Here's What You ACTUALLY Need To Do

In this episode, I’ll share my goal of making a net income of £10,000 per month from investing in HMOs and discuss the importance of understanding your financial targets and the necessary actions to reach them.

I will break down this goal into simple, actionable steps and highlight why creating equity is crucial for building a successful property business. 

Plus, I’ll offer an easy exercise to calculate the equity you need and discuss various strategies to add value and create equity in HMO properties.

Tune in to learn how you can achieve your financial goals through HMOs.

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Transcript

Andy Graham (00:02.67)
Hey, I'm Andy and you're listening to the HMO Podcast. Over 10 years ago, I set myself the challenge of building my own property portfolio. And what began as a short -term investment plan soon became a long -term commitment to change the way young people live together. I've now built several successful businesses. I've raised millions of pounds of investment and I've managed thousands of tenants. Join me and some very special guests to discover the tips, tricks and hacks, the ups and the downs, the best practice and everything else you need to know to start, scale and systemise your very own HMO portfolio now.

Andy Graham (00:40.526)
If I was to ask you what your financial goal was from investing in HMOs, then what would you say? Would it sound something like 10,000 pound net income per calendar month? Well, if it would, I would say that you share that same goal with about 99 % of our community members and people that I've asked this very same question to. Now I've not got any issues whatsoever with that round target of 10,000 pounds per calendar month. What I've found is that most people say it because it's easy to say, it rolls off the tongue. They've heard other people say and talk about it and...

I think for a lot of people, it's not so far ahead of where they currently are, perhaps their earnings in their job, maybe they're earning two to 3,000 pounds, 10,000 pounds isn't so far away that seems totally unachievable, but equally it's not such a big goal that just puts them off the idea of getting into HMOs in the first place. The other issue that I've got with this is that very few people, certainly in my experience, have actually delved into the detail of what 10,000 pound per calendar month actually looks like in terms of what they need to do and what they need to create based on where they currently are.

So what I find is they've got a nice round financial target, something like 10,000 pound per calendar month net income, but the timeline and what they think needs to be done to get there over that timeline often doesn't marry up. So today what I'm going to do is break down a very simple exercise that I do with every single one of my mentees to help you better understand how you're going to get to your goals and what it's actually going to require you to do.

What you're about to find out is that this is all about equity and the creation of equity. It's a fundamental part of the process of building a property business. And I think for some people, this might be a point at which you maybe need to revisit your goals and expectations because I'm about to give you a dose of very important reality. If you want to find out what I'm talking about, then don't go anywhere. Please sit back, relax, and enjoy today's episode of the HMO Podcast.
 

Andy Graham (02:33.11)

Hey guys, it's Andy here. We're going to be getting back to the podcast in just a moment, but before we do, I want to tell you very quickly about the HMO roadmap. Now, if you're serious about replacing your income, or perhaps you've already got a HMO portfolio that you want to scale up, then the HMO roadmap really is your one -stop shop. Inside the roadmap, you'll find a full 60 lesson course delivered by me, teaching you how to find more deals, how to fund more deals and raise private finance, how to refurbish great properties, how to fill them with great tenants that stay for longer, and how to manage your properties and tenants for the future. We've also got guest workshops added every single month. We've got new videos added every single week about all sorts of topics. We've got downloadable resources, cheat sheets and swipe files to help you. We've got case studies from guests and community members who are doing incredible projects that you can learn from. And we've also built an application just for you, that allows you to appraise and evaluate your deals, stack them side by side and track the key metrics that are most important to you. To find out more, head to theHMORoadmap.co.uk now and come and join our incredible community of HMO property investors.

Andy Graham (03:46.798)
Okay, welcome back. So today we're going to be talking about this 10,000 pound per calendar month goal that so many people like to set. Now in the pre intro intro, I said that I haven't got any issues whatsoever with this target. That's your target. Please don't change it. That's not what this episode is about. Today's episode is about understanding what that actually means. We need to understand the context of what that actually looks like. What actions do we need to take? And quite specifically, what does that mean in terms of equity? As you're about to find out, it's all about equity creation.

And I'm assuming that you don't have all the capital at hand you need to go ahead and buy the 10 HMOs or whatever it is that's going to give you that 10,000 pound per calendar month income right now. So we've got to do something about it. What I often find is, and this is my experience over six or seven years, working with about a hundred people on a one-to-one basis, really getting to know them and understanding their businesses, building plans and working with some really, really successful individuals. It's also liaising and talking and networking with you guys, our community members, tens of thousands of you and helping over 500 members in the roadmap. This is what I've learned and heard and seen so many times. Very few people actually break down what that 10,000 pound per calendar month goal looks like. They don't actually get into the detail of what that means in terms of the actions that they need to take and what they actually need to create to get there in the first place.

But today I'm going to make this incredibly simple for you. I'm going to spell it out. I'm going to make this very black and white. We're going to talk about this figure. And look, even if your figure or your goal isn't 10,000 pounds, you can still apply this exercise and this very same logic to whatever your target is. Bear with me. And it's going to make it very clear as to what you need to go away and focus on. Now to do this, I've got to make some assumptions. When I'm sitting down with a mentee, I spend a lot of time really understanding where they currently are in terms of their financial position, in terms of the time commitments, in terms of their skills and knowledge and experience. It's really useful for me to understand their strengths and weaknesses, the resources that they have and the resources that they don't have. Because after all, everybody's position is slightly different. And I've worked with people who have exited multi -million pound businesses and want to reinvest their capital into HMOs right through to people who've been

Andy Graham (06:07.918)
bootstrapping their property business very much like I did in the early days. So I'm going to assume if you've set yourself a target like 10,000 pounds per calendar month, you probably don't have all of the capital that you need right now to go and buy the HMOs that are going to allow you to do this. I'm also going to assume that you've probably set yourself some sort of timeline to hit that target over. Maybe it's a few years, maybe it's five years, maybe it's 10 years. I'm not sure. Whatever it is, it's entirely up to you.

But my job as a mentor is to try and help make sure that the objects and the goals that you've set and the actions that you've set and what you need to do to implement that all maps, they all align. And often what I find is they just don't, okay. Something's missing, something's skewed. Sometimes it's about compromise. Sometimes it's about making tweaks and changes here. Sometimes it's about really just sort of acknowledging that what you're trying to do is probably completely unrealistic.

That's fine. That is the case for some people. My job is to help you understand that. Now, what I would say is I've seen people achieve the most incredible things well beyond what I thought they might be able to achieve. And equally, I've seen the people with the most promising sort of sets of resources and plans really, really struggle because they haven't been able to focus on the actions that need to be taken to hit their goals and targets. But like I said, I'm going to assume that you don't have all the capital that you need to go invest in HMOs and you've set yourself some sort of a timeline. So let's say that you want to...

Hit the financial target of 10,000 pounds per calendar month in five years. Okay. And you're at the very beginning of the journey. You haven't got any HMOs yet. I'm going to assume that maybe you've got a bit of capital and let's say you've got a hundred thousand pounds. Just we'll work with nice round and easy numbers. You've got a hundred thousand pounds in the bank saved up at the minute. You want to hit a 10,000 pound per calendar month goal from HMOs in let's say five years then. Okay. What do we need to do between now and then? So you're giving yourself a five year target to get from where you are now to that 10,000 pound per calendar month target. The really simple way that I break this down for my mentees to really help them understand very quickly what's going to be involved is to reverse engineer this. Now, to do this, you need to first of all have a pretty good idea of where you're going to be investing, where you're actually going to be buying your HMOs. And the reason is because the price and the values and the equity and the cashflow, all of that stuff is quite different depending on where you are in the country now. If you're a regular listener of the show, you'll know that I've got a few sort of,

Andy Graham (08:33.261)
baseline performance metrics that I like to work with that I recommend that you try and work towards as well. One of those is a net 250 pound cashflow per month, per room after all of your costs. So after your bills, mortgage repayments, repair and maintenance, et cetera, you want to be aiming for a position where you're left with a net 250 pound per month, per room figure. So if you've got four rooms, it's a thousand pound a month, five rooms, 1250 pound a room. Okay. Now.

What we can do at this point is very quickly work out how many rooms £10 ,000 per month looks like. So let's do that math. Let's take £10 ,000. Let's divide that by £250 per month. That gives us 40 rooms. Okay. So if we had a portfolio of 40 rooms, 40 rooms, each making £250 net cashflow per month per room, that is our £10 ,000 net income target. Okay.

Now what we need to do is we need to understand what 40 rooms looks like in terms of properties, in terms of actual HMOs. Stick with me. Now, again, this depends on where you are in the country, but if I took where I am as an example, where I typically invest, my average sort of HMO over the years has been about 5.5 rooms, okay? Some five beds, some six beds, some four beds, some seven beds, but about 5.5 on average rooms per HMO. So I take that 40, I'm gonna divide it by 5.5.

That's about seven to eight HMOs. Okay. Let's go with seven. Keep the math simple. So seven rooms, 10,000 pound net income per calendar month. That's how many properties that we need to have bought. Okay. All of a sudden seven doesn't sound like such a difficult target to achieve. Let's break this down further. Let's get into more of the detail. What does seven HMOs actually look like? Well, again, this sort of depends on where you are in the country, but I'm going to take a pretty sort of middle line through the values of properties and the types of assets that people like you and I, HMO investors are typically buying. Now what you need to do at this point is just for a moment, make the assumption that you've already bought these seven HMOs and you've already got them. When we have bought something and done a refurbishment, we'll typically be refinancing it and we will probably be refinancing that onto a 75 % loan to value mortgage, okay? I'm assuming that you're...

Andy Graham (10:56.11)
Probably going to want to recycle any other capital back out, either to pay investors off or maybe to take and go and buy the next HMO. So I think it's fair to say that once we've refinanced those seven HMOs, that residual deposit, that 25 deposit that the bank has insisted has remained in the deal, that is equity. Okay. So if we take an average property value of let's say 350,000 pounds per HMO. And by the way, if that's a five bed, that equates to about 70,000 pounds per room. So we're paying 70,000 pounds per room. That's the finished product. That means that 350,000, a 25 % deposit on that HMO looks like 87,500 pounds. 87,500 pounds. That is the residual equity we've got left in that deal. So it stands to reason that if you were to own seven HMOs, because those seven HMOs will equate to your 10,000 pound net income per calendar month. We need to have somehow created seven loss of 87,500 pounds because that is your residual deposit in the asset. If you haven't created that equity, you can't actually have acquired and then held that asset, can you? So somewhere along the way, we've got to have created that equity.

So 87,500 pounds times by the seven HMOs, that is 612,500. That is the total equity that you will have as a minimum need to have created to have acquired and developed and then refinanced seven HMOs that equate to that 10,000 pound per calendar month target. Hope you're still with me. Now that 612 ,500 pound figure is your equity in the portfolio at that moment in time.

Now this is the bit that I think people don't give enough thought to. We said in this assumption that you had a hundred thousand pounds. So that's what you've got saved. So what I'm going to do now is I'm going to take my, this calculation of 612 ,500 pounds. I'm going to take off the hundred thousand pounds that you've got in savings. That leaves us with a figure of about 512,000 pounds. That is all equity that we need to have created through acquisition and refurbishment or development.

Andy Graham (13:19.726)
between where you are now, where we are now and hitting that goal. Does that make sense? So what this exercise really does do is it highlights what you need to probably focus on more than anything. It says that actually logically, if we want to hit a 10,000 pound per calendar month target, we probably need to be getting about seven HMOs. Then what it says is, well, if we want to acquire about seven HMOs, a pretty average property values within our industry,

We probably need to be creating about 87 and a half thousand pounds worth of equity by the end of each of those deals. Times that by seven, it gives us a figure of about 600,000 less than the 100,000 pounds we've got in savings at the minute. That leaves us with about 512,000 pounds. That is entirely that 512,000 pounds figure is capital that we have to create between where we are now and where we want to be. If we cannot create that equity, we simply cannot get to a position where we will own seven HMOs. It is fundamentally not possible. Now, how we create that additional value, how we add that equity to our portfolio over a number of years, there are a number of ways of doing it. It could be through joint ventures. It could be through using private finance. It could be a combination of finance and bank loans. It could be through utilizing commercial valuations. It could be through conversion and extension. It could be buying below market value. One way or another.

We need to utilize all the resources that we have and can leverage to create that additional equity. And this for me is the bit that people don't really think about enough. They think about that 10,000 pound per calendar month target. Maybe they need some rough math and think about how many HMOs it might be, but they don't really think about how important it's going to be to add a certain amount of value. At this point, if this was your goal and your objective and you're in a similar position, you need to be thinking above almost anything else, how...

Do I add value to each one of these assets? How do I do that recurrently? Okay. And this exercise can be used as a good method of guiding perhaps where you invest, the types of properties that you invest, how you are actually going to do it in terms of raising capital. Because one thing I see, for example, is people starting with a hundred thousand pounds, nice amount of capital to get started with. It's a lot of money. But actually when you look at.

Andy Graham (15:42.478)
what's going to be required to get you where you want to be. It's a bit of a drop in the ocean. So you can see very early on that accessing more and more capital is going to be really, really important. It's probably a good idea to actually think about that from the get go. It's also going to be really important to prioritize in almost every single case, deals that are going to allow you or give you the opportunity to fundamentally add value. So for some of us, that might quite simply mean that investing in prime student HMOs, whether it's an Article 4 direction, maybe in it's a terraced home and things like that. There's just not a huge amount of scope to add value.

Whereas if we look more peripherally, maybe focus on the professional market, we might be able to find deals outside of the article four direction that are at a slightly lower value. We might then be able to find opportunities where we can convert the garage, convert the loft, extend at the side and extend at the back. These are all really fundamental and very logical value add propositions. And this is exactly how you create the equity in the portfolio, how you create equity in each deal so that at the end of the deal, you can come to refinance it. You pull as much capital as you possibly can out of the deal, pay everybody who needs paying back off and that capital, that equity that you've created all remains as your residual deposit in the deal. That way you can go on and do the next one. Now there are some caveats to it. Depending on how much of your own capital you are or aren't putting into deals, you've got to be really careful.

If you're 100% privately financing these deals or using private finance plus bank and you're not putting any of your own capital in, you've got to be really careful to make sure that at the end of the deal, you're getting valued highly enough to get all of that capital back out to your principal and mezzanine lender. Okay. If you can't, then you've got a bit of an issue. You're going to have to put some capital back in the deal or you're going to have an investor's finance still left and trapped in that deal. You might not have created the 87 and a half thousand pounds. You might've only created 80 or 70 or 60. Okay.

So it's really important to understand this and also really important to understand that it's not completely linear. Every deal is a little bit different, but fundamentally that should be your purpose. That should be your real objective. Now, the way that I look at this is I'm not quite as aggressive when it comes to my HMOs as this. Actually, I like to take a lot of the cashflow that I am already generating for my portfolio and maybe making it in my businesses. And I draw that down and then add it to my business to

Andy Graham (18:08.398)
where I'm buying assets. So I'm not as reliant on private capital. I'm not as reliant on recycling capital. I'm not as focused on actually adding value and capital. I do a lot of that through my other larger developments, like my commercial to residential projects. However, over the years, that is exactly what I've done when I was younger and starting to build my portfolio, adding value in exactly this method was exactly how I did it. Done that many, many times for many of our private investment clients before I sold the agency last year.

So, this is pretty standard stuff, but I think most people, they set that 10,000 pound per calendar month target and they don't really get into the detail and think about what that actually means and looks like. And this is what that looks like. Now you might be in the South and you might want to invest in the South. So property values might be that little bit higher and you might not get that same yield, that same return. So part of your compromise might be that if you want to make that 10,000 pound per calendar month target work, you're going to have to actually create more equity to get there because the yields are lower.

So you're going to have to find ways and deals, methods of creating more equity along the way to get you to that same figure. Equally, if you live in an area that's got extremely high yields and you can still add lots of value, you might find it a little bit easier and faster to do this as well. So it's very circumstantial. There is more detail to it. And that's a lot of the work that I do with my mentees, which they go through this process, really get into the nuts and bolts of specific locations, the types of deals, what we can actually do there

How finance is going to work, how private finance is going to work, the types of agreements we can use. But this should give you a nice framework to actually work towards. So if you set yourself this target, that's great. I'm really excited for you, but really spend some time thinking about what that actually means. Now what you actually need to go and do. Yes, it means you need to have acquired a certain number of properties, but how are you actually going to get there in the first place? It's really black and white. You cannot ignore it. It's very simple math. You're going to have to have created a certain amount of equity by a point in time. If you want to achieve

A particular cash flowing target per calendar month. I told you this was going to be a really simple, straightforward, quick and easy exercise. And I told you that it was also going to be really quite straightforward and very, very black and white. And I think if you can look at your business at the early stages and when you're looking at your targets, I think if you can look at it like this and stay super focused on this piece, actually how to add values and get really good at adding value, you'll do really, really well. And some of the best examples of my mentees, our community case studies that we've got in

Andy Graham (20:35.438)
inside the roadmap. That's exactly what you see with these people. You see how focused they are on opportunities where they can add value. Every deal is a little bit different, but they're consistently able to find the opportunities to add value. Sometimes, and it's worth keeping this in mind, you have to speculate to accumulate. It's very difficult sometimes to make a lot of money off a little amount of money. Sometimes borrowing more to enhance your opportunity to be able to buy what could

be a much more valuable deal, so a property that has a bigger footprint to be able to do a refurbishment that's much bigger so that you can actually add a lot more space, therefore adding a lot more value. It sounds counterintuitive, but often trying to utilize a relatively small amount of capital that you've got, even if it might seem like a large amount and a hundred thousand pounds is, it can be a slower method to getting to where you want. Sometimes you've just got to think a little bit bigger. You've got to think outside the box. You've got to sometimes speculate to accumulate. And I think a lot of businesses is about that. I think a lot of property business is about that as well. Unfortunately, this is just a really, really capital intensive game.

So the more capital you can get your hands on, the more value you can add, the more you will be able to amass yourself in terms of equity in your own portfolio. That's it guys. If you've got any questions about this whatsoever, you want to come and discuss this. If you want to have a conversation about this, come on over to the HMO community. It's a great place to have these sorts of conversations. Maybe you've got a particular deal at the minute. Maybe you actually just want to talk about your goals. Let's have that conversation.

Coming over to the HMO community, that's our free group in Facebook. It's a great place to have these conversations. It's also a great place to find guidance and support on almost any subject that you can think about when it comes to HMOs. Of course, if you do want to level things up, then head over to thehmoroadmap.co.uk. We are of course multi award winners now, best content provider and highly commended, so the runner up of the best training mentorship award at the HMO awards, which were obviously incredibly proud of, but go and see what all the fuss is about. Go and see why, find out why. Like if you want to sign up on a starter subscription, you can cancel any time and it'll cost you less than the price of a cup of coffee every single day. Same for the annual subscription, but you can join it for 12 months and you can get way more for it. It's an absolute no brainer, real bargain. And at the minute, because we are celebrating recently winning our awards, we've got a huge 20 % off sale. We very, very, very rarely do anything like this.

Andy Graham (22:57.774)
And it's being sort of, it's selling like hotcakes at the minute. So many people are taking advantage of that right now. So all the lessons that you could need to help walk you through the process of recycling capital, understanding things like commercial valuations, how to add value through floor plan optimization and better refurbishments. It's all there and so much more waiting for you inside the HMO roadmap. And guys, before you go, I do ask you regularly. I'm going to keep asking you because it helps so much, but.

If you're new to the show or even if you're a long-term listener, if you haven't given us a review yet, please, please, please. If you can find 30 seconds of Splat to leave a quick review, let us know what you think of the show. Hopefully worthy of five stars. Hopefully you're enjoying it. You're finding it valuable. Hopefully it's inspiring when we get our guests on. But if you could let us know what you think, we'd be really, really grateful. It does help spread the message of the podcast. It puts it in front of more people that does all that good stuff and it helps spread the word.

And good message about the great stuff that you guys out there in our community doing and it does continue to help us bring great guests onto the show so it's not just me every single week. That's it guys, I hope you found today's episode useful, I hope you can put it all to practice and don't forget that I'll be right back here in the very same place next week so please join me then for another installment of the HMO Podcast.