Multi-Award Winner Alex Babouris On How He Built A 700+ Room HMO Property Business

In this episode, I’m thrilled to welcome Alex Babouris to the show. Alex is the Founder and Partner of Babouris Living, a multi-award-winning, fully integrated investment platform specialising in Cambridge property.

In this conversation, we’ll cover the following:

• The vital role of effective HMO management
• The hurdles and rewards of building a successful agency
• The perks of rent-to-rent deals for expanding your portfolio
• How to create a standout customer experience and boost community engagement
• Strategies to maximise profits in high-value areas like Cambridge
• Tips for finding and securing the best deals

You won’t want to miss this engaging chat with Alex Babouris as we uncover the secrets to thriving in the world of HMO property investment and management.

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Transcript

[00:00:00] Andy Graham: 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.

[00:00:20] Andy Graham: 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.

[00:00:40] Andy Graham: In today's episode, I'm joined by Alex Babouris. Alex recently swept the floor at the HMO awards, walking away with a handful of different awards. And today we're going to find out what it takes to be a multi award winning HMO property business owner. We're going to find out more about Alex's story and his journey to building such a successful HMO property business.

[00:00:57] Andy Graham: And we're going to find out why Alex thinks good HMO management is more important now than ever before. So if you want to hear that conversation, make sure you stick around. And before we get into today's episode, just a very quick reminder, we're currently holding a 20 percent off sale on the HMO roadmap.

[00:01:13] Andy Graham: You can get your hands on everything we have to offer in premium subscription for 20 percent off, but it ends at the end of June. So if you've been thinking about joining, if you're sitting on the fence, now is the time. Don't wait too long because that sale is coming to an end very, very soon. Okay, please sit back, relax, and enjoy today's episode of the HMO Podcast.

[00:01:35] Andy Graham: 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.

[00:01:51] Andy Graham: Inside the Roadmap, you'll find a full set of tips, 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.

[00:02:06] Andy Graham: 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.

[00:02:21] Andy Graham: 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.

[00:02:45] Andy Graham: Hey Alex, thank you for joining me on the podcast today.

[00:02:47] Alex Babouris: Pleasure to be here, Andy. Thank you.

[00:02:49] Andy Graham: I feel like I'm talking to a superstar today because you are the man of the moment, let's be honest, Alex.

[00:02:54] Alex Babouris: Yeah, still not sunk in. HMO Awards were a bit of a blur.

[00:02:56] Andy Graham: Couple of weeks ago at the HMO Awards, you turned up and you walked away with almost every single award. I might be exaggerating slightly, but you won a staggering five awards, three winners, two highly commended, which is an incredible achievement. And as a judge, and actually someone who We were fortunate enough to win a couple of awards this year as well. I know how tough it is and how high the competition is.

[00:03:20] Andy Graham: So that speaks volumes about you. And I know one of your agency awards that you won, which we'll get onto, was judged by JP, my mentor. He's been on the podcast a number of times in the past. a tough judge, not an easy guy to please, especially when it comes to the world of agency. So yeah, that speaks volumes about you.

[00:03:36] Andy Graham: So well done. Really, really pleased and excited to have you on the show today and find out a little bit more about what it takes to win awards like this, what you're doing in the agency and what's going on in your business. So Alex, for perhaps some of our listeners that maybe aren't quite as up to speed with you and your business as maybe I am. Could you give us a little bit of insight as to what you're currently doing, where you are and what your business looks like at the moment?

[00:04:02] Alex Babouris: Okay. So at our core, we are a managing agent and we're based in Cambridge. We are actually the leading independent managing agent for shared homes in Cambridge. We own and operate a portfolio of about 700 rooms. And yeah, so that's, that's cool. Us in a nutshell, we're in our fourth year, we're a team of 10 and we're on a mission to change the perception of shared accommodation.

[00:04:22] Andy Graham: Yeah. And it certainly looks like you're doing a really, really good job. And interestingly, Cambridge is a university town and I know that you've managed students as well. I'm sure we'll get onto that today, but just from experience. Obviously, I built and sold my agency last year, and I know how tough it is to build an agency, and especially in established towns and cities like Cambridge, where there are already people who are established. Management is a great business model, I think, for a few reasons.

[00:04:54] Andy Graham: It's very sticky income, but it's very sticky because landlords don't really like to change the way that they're doing things. So actually getting new business on is really, really tough. So I think to your 700 rooms at the moment, are you, which is an incredible achievement. And am I right in thinking that the agency itself is only four years old?

[00:05:14] Alex Babouris: Correct. Yeah. As a limited company, as a going concern. Yeah. We're in our fourth year.

[00:05:18] Andy Graham: Staggering. And that is all through, again, correct me if I'm wrong, just organic growth. That's just good old fashioned marketing, word of mouth, hustling, grinding, no acquisitions. Yeah. Wow. Fantastic.

[00:05:31] Alex Babouris: No acquisitions. Yeah.

[00:05:31] Andy Graham: So, okay. I'm a huge fan of agency and managerial work from a business perspective. I won't say I've got a great soft spot for it on a personal level, cause it's really, really tough as you well, well know, but I think it's a really brilliant business model. And I think, especially for anybody who is already investing in HMOs plans to continue investing in HMOs. Can you tell us a little bit about what's going on before the agency and why we've ended up not only just building an agency, but why you're investing in HMOs in any case, Alex? Sure. Thanks.

[00:06:02] Alex Babouris: Yeah great question. I think ultimately it's cash flow. It's income. That's the reason we do management and not sales. It's, as you said, sticky income, recurring income, which, if you get it right, can be, yeah, it can be a great source of cash flow, which we then funnel into sort of purchasing and renovating, leasing. our own properties to sort of build out, uh, build out the portfolio.

[00:06:23] Andy Graham: Yeah. And when did you start building your own portfolio? Cause I think you'd been buying HMOs, hadn't you, for a number of years and then probably very much like myself ended up doing a few people a few favors. And before you know it, you're also a manager.

[00:06:35] Alex Babouris: Absolutely. Yeah. Dead right. So I bought my first flat when I was 20, 21. It was quite a vanilla buy to let than a, another buy to let thereafter, but realized that that's quite a slow drip.

[00:06:45] Alex Babouris: And I had sort of bigger plans, bigger ambitions to try and. Yeah, push cashflow further. So started to, to research and look into different ways to do that. And one of the ones that most excited me was HMOs. You can take one property, one source of income and multiply it by four or five, six, however many tenants you like.

[00:07:03] Alex Babouris: So sort of deep dived HMO, a property that I was actually living in the left hand semi came up for sale, bought that property with the purpose of turning that into a five bed HMO. And that was the springboard really for the agency and everything that's come since.

[00:07:18] Andy Graham: When you started out, when you're buying your first properties and had this idea of maybe building an income stream from HMOs, did you at that point have any idea that it would turn into what it has become now? Did you ever think that you wanted to grow an agency or is this stuff that happened or sort of evolved kind of organically?

[00:07:38] Alex Babouris: Yeah, organically. I think my background has had a fairly humble childhood and realized that I wanted my story to end differently to it started and thought property was a way to sort of accelerate that and achieve that.

[00:07:49] Alex Babouris: So I always had the wish or the desire to be in property, but someone told me early on that that's fine as long as you're generating an income alongside it because you need the income in order to funnel into property. So looking for different ways to do that. To use your word organically, from investing in that HMO and trying to find an agent to manage it so I could have the support and scale, I found it quite difficult.

[00:08:10] Alex Babouris: High street agents would do it, but didn't necessarily want to do it. Or at least that's what I felt. So I ended up doing more and more with the management myself. And as I'm sort of networking and learning more, finding other landlords with HMO portfolios that were the same thing.

[00:08:23] Andy Graham: Yeah. That's absolutely what I found as well. And in the big cities, there was more choice, but not necessarily a great choice of people doing it really, really well. That was what I would say. And we were trying to create stuff that was really high spec and really, I mean, you spend a couple of seconds on Instagram. Now, if you follow the sort of stuff that you and I do, you see so much great looking stuff, but it's still a fraction of the market.

[00:08:42] Andy Graham: And actually in big student university towns, it's a really tiny proportion of the stuff on the market, the stock, and a lot of what's going on is certainly. When I started to build my agency, I think 2016, so much of it was sort of very average, if even that, and trying to find someone who could work with us to manage things at a better level and provide a better service to try and match the sort of stuff we were doing with our properties.

[00:09:07] Andy Graham: We just couldn't find it. And the solution that we came to us, we're going to have to do this. Ourselves and I remember managing is hard, isn't it? And it's definitely, and I don't want to encourage anybody to go and just start an agency today because it, and actually I think, did you feel when you decided to set up the agency, did you feel like there was a degree of compromise in actually having to maybe put some of your personal goals and objectives that will maybe around buying and holding assets on pause for a while, while you actually invested into building the agency?

[00:09:41] Alex Babouris: Yeah, dead right again. So my focus was wanting to build my own portfolio, but using the income generated from an agency in order to do that fundamentally, but realise that the, the agency, I think to try and get that off the ground, you'd mentioned that Cambridge is a sort of established market and it was quite difficult to get started.

[00:09:57] Alex Babouris: So that demanded all of my attention and all of my effort. And I think it's just from a relentless commitment to trying to do the best we can and really sort of carve out a niche for us as sort of leaders and specialists in shared housing is sort of how we've built that. And as a result, my portfolio ambitions got put on the back burner, but it's sort of one step backwards, two step forwards.We're reaping the rewards now.

[00:10:18] Andy Graham: That's exactly how I feel about it. And I remember sometimes I'd come home and I would sort of moan a little bit about the agency and some of the problems that we were dealing with. And as an agency owner I think agents get a really bad rap. Generally speaking, it is a really tough business to get right.

[00:10:32] Andy Graham: And I think that a lot of people mistake self-management and how easy that can be. And think that actually managing an agency in large volume of people is the same. And actually as the owner, as the founder of a company like yours and like mine, the way I used to describe it to Gemma was there is a funnel of, you know, crap.

[00:10:52] Andy Graham: And you are at the bottom of that funnel. So all of the really, really, really difficult stuff finds its way to you. And some of it is actually really difficult, isn't it? You've got mental health problems. You've got tenants misbehaving. You've got sometimes really, really difficult landlords with extremely high and sometimes unrealistic expectations.

[00:11:11] Andy Graham: Yeah. Did you find that it helped to grow like a thick skin? I mean, I think it did. And I think that has actually helped me as an investor and as, as a business owner.

[00:11:20] Alex Babouris: Totally agree. I think you definitely need thick skin if you want to sort of manage property generally, but especially if you want to run an agency that your analogy of the funnel is great.

[00:11:26] Alex Babouris: And my thoughts are that we sort of play the middle. We are constantly talking to two different clients and they necessary and their goals and their, their wants aren't necessarily aligned. So we are sort of paid effectively to take the bullets from, from both ends and, um, and yeah, do our best to try and keep those guys aligned.

[00:11:42] Andy Graham: And it's always so difficult in any scenario, isn't it? Being that middleman, you're often the mediator and you're taking heat from both sides. So do you enjoy the systemisation the operational part of building the agency? That was one of the bits that I really enjoyed. There was so much to get my teeth stuck into.

[00:11:58] Andy Graham: And actually when I worked with a number of mentees and clients who have agencies around the country. And I really enjoy that. There's so much that you can do in ways to find and drive efficiency. And do you enjoy that part as well?

[00:12:09] Alex Babouris: Absolutely. Yeah. I think that's probably one of the things I enjoy most about the job. It's especially, I think it's the key ingredient for scale. You can do things manually and up to a point, but if you really want to grow and really want to be delivering a top service, there's. You're constantly refining and trying to find new ways and new approaches to do things.

[00:12:25] Andy Graham: You won the best HMO agency, fantastic achievement. You also won best professional manager's award and the best rent provider award. And that's a staggering sort of a collection of skills. I think just to get management right is one thing. You also actually got a highly commended award for sort of as, as a student manager and also for the best community experience.

[00:12:46] Andy Graham: So you're ticking so many boxes, but that means behind the scenes, you guys are obviously really, really focused on a number of different things. Rent to rent, I think it's a really interesting concept. And it was, as you probably know, a key part of my long term strategy. And it was a really, really important part.

[00:13:02] Andy Graham: And if I'm honest, A very, very profitable part of the agency that I built. Do you feel the same and is there a ratio that you've got in your agency? Because we find it more challenging to bring on rent to rent deals, but when we did, they were so much more profitable. How have you found that and kind of how have you woven rent to rent into your model?

[00:13:21] Alex Babouris: Yeah, almost the same as you. I think as part of our commitment to wanting to be the best, genuinely we, we do, that we didn't start this agency to just sort of take part. We want to sort of lead from the front. Oftentimes when you're managing property, obviously you have limited control. Ultimately, it's landlord money.

[00:13:34] Alex Babouris: It's not your money. It's not your say so. So sometimes there's not the buy in from clients to sort of delivering the service that you might want to as a, as an agency owner. Rent to rent gives you that control. You're effectively become the landlord and you're financially responsible when ultimately you make the decision.

[00:13:48] Alex Babouris: So rent to rent, not only from a profitability point of view, is great for us, but in terms of us sort of trying to push things forward, gives us that freedom.

[00:13:56] Andy Graham: I think if you do it right as well and you're investing a certain amount of capital into rent to rent projects, which is one of the big challenges of it, especially if you're doing a volume, actually, if you're spending between 10-20,000 pounds on a rent to rent, which was our average.

[00:14:09] Andy Graham: And a lot of people would sort of be quite taken aback by that. But what I would say when we were doing that, we were able to find ways of forcing the rental value up rather than having to force the rent to the landlord down. almost get an asset below market value. We had the end to end control that you talked about, but we were also able to utilise what we were doing, the work on the property as part of our brand and enhancing our brand experience. And it was such a great way of enhancing the look of our agency and the reputation. And this looks like something that you guys have done really, really well.

[00:14:40] Alex Babouris: Yeah. Thank you. No, exactly that. And I think the rent to rent gives us an opportunity to sort of each property is a case study. So every time we do a renovation, we open the doors for other landlords who we know locally and sort of show off what we're doing actually on social media, whatever we can say as much as we like as, as how good we are, but there's nothing like walking through the door of property that we've just taken on, show them some before photos, explain how we've invested 15, 20 K like you've said on a renovation and then explain the uplift in the rents that we're achieving. Yeah. It's great for us in that regard.

[00:15:08] Andy Graham: I think management is a key part of getting this strategy right, whether you're using an agent like you or whether you're going to self-manage. I think management is a fundamental part of the process of building a profitable portfolio. And I think that this has been largely overlooked for many, many years.

[00:15:27] Andy Graham: And I think, I'm not sure whether you agree, but I think a big part of the reason has been because. People selling courses have often been selling the ideas of finding good deals, maximising the return on capital employed. Everything sort of to do with acquiring an asset, doing a refurbishment and then getting it refinanced.

[00:15:44] Andy Graham: And that's only the first 12 months of that life cycle of that property, isn't it? And actually most of us, certainly me, we're holding, planning to hold for 10, 20 plus years. And what I found, I've been doing this 15 years. You've been doing this for over 10 years. that the work really starts actually after that refurbishment and after that refinance, doesn't it? Would you agree? Totally agree.

[00:16:06] Alex Babouris: Absolutely. I think you nail on the head. I think as you said, at the point of refinance that you've got your money out, but ultimately at that point you still don't have any tenants. You don't have any income. The property is not being used. And I think at that point, if we're, we're considering profitability, the way that the properties used and maintained is sort of a key ingredient to ensuring the longevity of your investment.

[00:16:25] Andy Graham: Yeah. Well, on those key ingredients, you're obviously the right man to ask this question too, but what would you say the right ingredients are to get management just right to really maximise the customer experience, to keep tenants as happy as possible, keep them for as long as possible and to sort of really sort of maximise the profits that we can take as landlords. Cause let's be honest, it has got increasingly difficult to make the same amount of money from our assets.

[00:16:49] Alex Babouris: Absolutely. I mean, I can talk for hours about sort of compliance and systems and processes, but I think ultimately, and this is key more so of HMO than it is typical buy to let, it's about people, it's about community. So if you're focusing on, on the customer, ultimately how these people, your renters are using the properties, enjoying the properties and engaged with, I think that's the real secret to how to increase rents and ensure that renters stay for longer and look after the properties better.

[00:17:18] Andy Graham: What sort of stuff do you do in the agency and as a landlord, Alex, what type of things are you doing to enhance that customer experience, to maybe improve that communication and to try and keep tenants for longer?

[00:17:28] Alex Babouris: Yeah. So I think a big thing is transparency. So we're quite proactive on social media, sort of warts and all. We'll share everything on our stories and on our feed. I think responsiveness to general inquiries, but also repairs and maintenance. We've, we've brought maintenance in house. So we have a team of handymen and gas engineers and electricians that work for the agency.

[00:17:46] Alex Babouris: So we can just improve that speed of response. So which not only keeps the properties better looked after, but keeps the renters happy. And I think a general feel about sort of community, the experience that we try and create. With our house shares, although it's not, I suppose, traditional co living, these are not big blocks of 200 beds with gyms in the basement and so on.

[00:18:06] Alex Babouris: We're still trying to create that community across the portfolio. So we do open days at our office in, in WeWork where renters can come along and have a, have a beer after work. Uh, we're forever hosting events and linking up with local businesses to offer them exposure and bring people together.

[00:18:21] Andy Graham: Very cool. I've seen a number of agencies, more so in the last 12 months, I would say, trying to find ways. Almost out of the house to enhance the community experience as well. And I think that this is one of the real advantages that agents have over private landlords. It's very difficult to do that if you've got a small portfolio, but as an agent, actually, you've got the ability to leverage larger spaces.

[00:18:43] Andy Graham: larger databases. And I think as the sector is becoming more and more professionalized, and I had personally, I think that we are approaching a point at which specs can't really get any better. I mean, I just look at something every day and I'm like, wow, that is absolutely incredible, but it's not necessarily more incredible than the last few things I've said, seen.

[00:19:03] Andy Graham: They're all incredible. Do I think that that has been something of the last five to 10 years that. As a community of investors, I think the HMO community has done an incredible job of doing, don't get me wrong, there's still lots and lots and lots of people who don't do that. But I think the top end of the market, the private market, from a spec point of view, is absolutely fantastic.

[00:19:20] Andy Graham: But I think we're also getting to a point where that's not quite enough now. Yeah. How do we do better? And I think it's these sort of community experiences, these things outside of the house, enhancing communication, responsivity, that sort of stuff is now actually, I think, where a lot of the gain is to be had.

[00:19:35] Alex Babouris: Yeah, again, nail on the head. I think with us, it is about the community. And I said at the beginning about our mission is to change the perception of shared housing. We see shared housing, community living as an upgrade, not a necessity. We have many graduates that moved to Cambridge on very high salaries, and they're choosing to stay in shared housing because they've got that instant community, that instant network of people.

[00:19:55] Alex Babouris: In fact, one of our team members has actually swapped a one bed flat in the city to join a house share, because they want to, with us, which, because they want to, uh, they want to experience that community.

[00:20:04] Andy Graham: Oh wow. I hope you gave them a discount, Alex.

[00:20:07] Alex Babouris: Mixed rates

[00:20:09] Andy Graham: For maybe some of our listeners who are wondering whether or not they should self-manage or maybe continue self-managing or consider taking on an agent.

[00:20:18] Andy Graham: I mean, the obvious sort of sticking point for a lot of people will be the costs, but I think that the time involved is often overlooked there. And I don't think it's fair to use that as the only sort of measuring stick. For anyone listening who's wondering whether they should be thinking about using an agent or maybe continuing or self-managing, what would your advice be, Alex? What sort of things should they be thinking about to help make that decision?

[00:20:41] Alex Babouris: So for me, it's all about the why. Why are you doing property? Why people don't necessarily invest in HMOs. That's not a light touch. That's not an easy route into property investing. So you're after typically cashflow, not necessarily a job.

[00:20:53] Alex Babouris: I've not met anyone yet who's told me that they've invested in investment properties because they like getting calls at midnight because the boiler is broken. If that's you, then they're muzzled to have a lovely time. But if not, and you're interested in income and scaling, then I think working with people who can sort of compliment what you're trying to achieve.

[00:21:12] Alex Babouris: Is the way to go. And I think you mentioned the cost. I think for us, we're, we're 10 percent all-inclusive on the management, but we try and demonstrate that we're almost cost neutral, like a good accountant might cover their costs in the tax that they save an individual. Then we're similar in the way because of the efforts we're putting into community and the way that we're trying to set ourselves above market, we're able to achieve market leading rents and almost for the landlord, it's sort of cost neutral to them, but they get the benefit of our service.

[00:21:36] Andy Graham: Yeah. I couldn't agree with that anymore. And I've seen it so many times. I think so many people. They invest in the HMO, they get it up and running, they self-manage it, and then they struggle to sort of separate themselves from the management and just can't peel themselves away from that extra little bit of income that they feel like they're, they can keep, but actually it's taking so much more of their time, it's taking a lot of, you know, I think of headspace, which again, people don't think about.

[00:22:01] Andy Graham: I remember just sometimes going on a holiday. It was a bit of a chore and it would frustrate Gemma because I would often be getting calls and it would inevitably be nothing would happen for a while. And all of a sudden it would all come when I was on holiday or at Christmas. And it's really tough. And that's the really frustrating stuff.

[00:22:15] Andy Graham: And I think a lot of people as they're, building their businesses, building their portfolios, especially alongside maybe a job that they haven't yet been able to leave running a house, young families and things like that. It's just more to think about. And I find that it often distracts from that primary objective, which is actually going out there, finding money, finding deals, doing refurbishments, adding value, refinancing and they're focusing primarily on that equity creation strategy, getting the assets up and running.

[00:22:43] Alex Babouris: Yeah.

[00:22:44] Andy Graham: And they just, the offset is, you know, getting dragged into these problems, which just takes more and more time.

[00:22:48] Alex Babouris: Absolutely. And I think you can also then get sort of demoralizing if you're having to, let's say you're on holiday and then you're getting those phone calls. It's, it will then sort of taint your view of, you know, investing, which I think you should keep them separate, understand why you're doing it and then set up accordingly.

[00:23:01] Andy Graham: Yeah, I think it's really important to actually start as you mean to sort of go on and start as you mean to finish. I think start with the end in mind. If the objective is to ultimately retire on your portfolio. Then managing it from day one is probably not the best solution to doing that. Focus on building the portfolio. Yes, it might cost you a few extra quid, but actually use that time to go and make yourself a few extra quid by bringing on better assets, doing a better job of the projects that you're doing.

[00:23:28] Alex Babouris: Absolutely. Yeah, totally agree.

[00:23:30] Andy Graham: Let's talk about a couple of different case studies then, Alex. You've got a couple of interesting ones, I think a good rent to rent one and an interesting sort of multi property purchase as well. Yeah. Can we start with this one? I think you said that you're at the moment purchasing a portfolio of six HMOs and is this portfolio in Cambridge?

[00:23:47] Alex Babouris: Yeah, they're all on Mill Road in Cambridge, so CB1 Central. Wow. It's Cambridge's Shoreditch.

[00:23:53] Andy Graham: So, I mean, Cambridge is not cheap, Alex, so this must come with quite a price tag.

[00:23:56] Alex Babouris: It does. Yeah. Um, so we are an equity partner in the deal. I can't confess to having total control, but we are agreed at 3.15 for the six properties. So 525 per property.

[00:24:07] Andy Graham: Big stuff. And I think one of the things that's really interesting, and actually I was reminded of this recently, I judged the residential to HMO category at the awards. It was unbelievably competitive and incredibly impressive. And one of the things that really stood out for me was some of the real top performers in that category were doing deals in very high value areas, places around London, around the Southeast, Oxford, these sorts of locations where typically I would say people coming into the market tend to dismiss because it looks so difficult to get the returns. Now clearly the barrier to entry is higher because at 500,000 a piece, there's a lot of capital to find irrespective of what you can do with it.

[00:24:52] Andy Graham: But can you talk us through what your objective is with this and how you guys are making deals like these actually perform really well in what are very high value areas?

[00:25:02] Alex Babouris: Yeah, I think one of the sort of gift and the curse of Cambridge is, as you said, is the high residential values. I think for us it's a benefit in that, yes, high residential value sort of underpins what we're trying to achieve. So not only the commercial valuations, which once they're improved and you're able to achieve those top rents, they work commercially, but also they're underpinned by sort of high residential values.

[00:25:25] Andy Graham: Yeah, you've got that combination of a really good brick and mortar value built in, as well as maybe some premium on the commercial valuation. And what sort of rents after the works that you're doing, Alex, are you able to achieve? And I assume you're buying these things, planning to do a scope of works and then enhance the rental value.

[00:25:45] Alex Babouris: Yeah. So on the portfolio that we've mentioned, we're spending about 50, 000 per property. So 300 K all in, and we're looking to uplift. So on a bricks and mortar valuation to 4.8 million. But in terms of the rents that we're getting at the moment, they're achieving somewhere between 400 and 500 pounds a month. Massively under market value, even in their current condition, that's below market value, but with the renovations and the improvements that we're looking to put in, there will be somewhere between 850 to 1,000 per month per room, depending on size and on suites and bits and pieces.

[00:26:16] Andy Graham: So interestingly, part of the strategy here is it is adding capital value, you're buying a good value, although they're not cheap, but also adding a lot of rental value. I think a lot of people will be listening to this, Alex, and thinking where on earth are you finding deals like this? Because these are not the sort of things that necessarily are standing on the shelf and are that easy to get your hands on.

[00:26:35] Andy Graham: Yeah. How are you finding deals? And is this quite typical? And how often are these sorts of things coming up?

[00:26:41] Alex Babouris: Yes, that portfolio is a bit of a unicorn, quite rare. I mean, I started speaking to that particular landlord, sort of four or five years ago, trying to woo him for management. And he always kept me at arm's length.

[00:26:50] Alex Babouris: But when it comes to sell the portfolio, there was an opportunity and our partner was able to sort of facilitate some, some funding to get that done. But I think we are seeing more and more deals coming across our desk. And the more that we're doing things like this and getting our name out there, we're being recognised as people that can operate at that level and do those deals. Yeah, that one's quite rare.

[00:27:07] Andy Graham: I think it's a good example of time in the market and actually pipelining things. I've said it so many times, some of the best deals I've ever done were deals that I had thought fell through many years before. Yeah. And we continue to nurture the contact, had a good relationship, a lot of mutual respect.

[00:27:26] Andy Graham: And when the time was right for them. They came back and we were able to do the deal. We still had great terms. They knew how I operated in business. I knew that they were black and white and it just made for a frictionless deal. That was great for everybody. And this is tough when I think when investors are just getting into the market.

[00:27:43] Andy Graham: We want to see results quite quickly and often I think it's really important, isn't it, to remember that this is a bit of a slow burner. Unfortunately, buying property, investing in assets, it's something that does take a bit of time and if you can be patient with it, I mean, I'm not saying we can't do more, but if we can be patient and prioritise nurturing some of those contact long, long term, they can turn out to be some of the most profitable sort of exercises that we can do.

[00:28:11] Alex Babouris: Definitely. Yeah. I think we said earlier on in the podcast that this management is sticky income. Landlords aren't necessarily keen to move. I know from sort of recent experience, the last sort of six months, we're picking up clients that I started speaking to four or five years ago, especially the bigger, more established landlords. They're not going to chance it on a new company. They want to see results. And yeah, once you've proved yourself, then those opportunities start to open up.

[00:28:33] Andy Graham: I have often spoken about direct vendor marketing. It's particularly for rent to rent deals. And I can't tell you Alex, how many letters I get every single week that look exactly the same little logo in the corner.

[00:28:45] Andy Graham: It's on a pretty bland day, four piece of paper with six or seven bullet points telling me that they're going to do the cleaning. There'll be no voids, et cetera. And I almost never see a letter from the same person ever again. And what I've said so many times is that. Direct vendor marketing and actually trying to generate warm leads.

[00:29:03] Andy Graham: It's all about timing. You've got to be quite consistent, quite persistent with the messaging, having those conversations. And whether this is direct, I think, or even with agents, whatever it might be, always sort of pursuing that and being consistent in getting that message forwards. And if you send enough stuff, eventually, whether it takes three months, six months, 12 months, a year, three years, eventually when a landlord, decide that the time is right for them.

[00:29:27] Andy Graham: Maybe their circumstances have changed. Maybe something's happened. Maybe they've decided it's time to retire. Maybe the property's got to a point where actually they're finding it all a little bit too much to handle. It needs some work. At that point, if you're the person that's been persisting, pursuing them, trying to woo them, sending that message.

[00:29:44] Andy Graham: I'm a big advocate for sending high levels of valuable information as part of a direct to vendor strategy, not just a sales letter. Sending informative content. When that authority and that credibility and that reliability is there, I think it builds so much goodwill. And I just don't think enough people understand how much value in these sorts of processes you actually have in building a portfolio or a business.

[00:30:06] Alex Babouris: Yeah. Great view. I think it's definitely consistency. Keep showing up, keep doing the work, but leading with value. As you mentioned, the letter there with a couple of bullet points about we do your cleaning and there's no voice. Everyone's saying that it's really sort of distilling your message. What is your value proposition?

[00:30:22] Alex Babouris: And then how can you explain that clearly and concisely? That for me, I think wins big. But another thing I'd like to mention is direct to vendor marketing, but is networking. And we've noticed that a lot of the clients, the bigger clients that we're picking up now is a result of relationships. So doing a good job for client a leads to client B leads to client C. So I think that paired with the value is how you pick up clients.

[00:30:43] Andy Graham: It's really great advice. And I think a lot of people, a lot of investors, particularly newer investors, It's difficult to see the value in spending time having those conversations and going to those networking where often at the time it feels like you're walking away with very little, maybe a business card, but actually people remember and like you say, people recommend and refer and sometimes you've got to try and climb a few hills to see the view of the landscape at the top and it can take time and it is tough.

[00:31:08] Andy Graham: And I get that, but I think my advice to echo you would absolutely be like, if you want to build a portfolio, you want to build it quickly. Invest in those sorts of things. Invest in sending the right information and content. Invest in going to the right networking events, having the right conversations, following people up.

[00:31:24] Alex Babouris: Absolutely. I think it's your shop window, isn't it? That's what you're presenting to the client. So it needs to be the best and the most valuable in whichever form you decide to do it. So, yeah.

[00:31:33] Andy Graham: Let's talk about this rent to rent case today because this is also a really interesting one. Huge fan of rent to rent. I think it's done right. Can be an incredible business model. Loves you guys are smashing it. Tell us a little bit about this new deal that you're doing at the minute.

[00:31:46] Alex Babouris: So this is our latest one. It is the property that our colleague is moving into. They've claimed the biggest room, but it's a property on Histon Road. It was rented for, or leased, sorry, for five years to a, another operator. The contract came to an end, we was able to offer the landlord an increase on rent of about 10%. We've since spent in the region of 20,000 on a complete refurb, so new bathrooms, kitchen upgrades, complete new flooring, wall coverings, the lot.

[00:32:12] Alex Babouris: As a result of that, we're now fully rented and we've increased the rent from what the previous operator was, was generating by 60%, which gives us a margin of about 30, 000 a year. So we're all profit from month nine and yeah, we've got it on for five years and the landlord has many, many others. So we're looking at those at the moment.

[00:32:30] Andy Graham: Well, one of the great things about working with landlords like this is that they do often have so many properties in their portfolio and I've no doubt that you're also thinking that long term. When the time comes for this landlord to dispose of some of these assets, you'll probably be the first person that gets to know about it, which is yeah, a superb position to be in.

[00:32:51] Alex Babouris: Absolutely. I think, yeah, they're right. Yeah. I think we've picked up a few opportunities like that. There's another one on Catherine street where we were managing and when it comes to dispose with the first people they ask. So, yeah.

[00:32:59] Andy Graham: 20,000 sounds like, I imagine, to a lot of people, a lot of money to spend on a rent to rent, Alex. I think the messaging out there is you spend as little as possible. Now, I think I've been pretty clear on the podcast that I don't agree with that. I'm totally in your court here, but talk us through what sort of stuff you'll do on a project like this. What will you actually spend 20,000 on and how will that actually make this deal work for you?

[00:33:25] Alex Babouris: Yeah. So I think first of all, it is a lot of money, but spent correctly, I think, as I mentioned, sort of month nine onwards, we've broken even and it's all profit from there. So it's a relatively short, short play. I think the money isn't spent necessarily on the shiny things that you can see. I think we're very much focused on longevity of profit and income.

[00:33:43] Alex Babouris: So things that we put right straight away are typically plumbing issues. So hence the new bathrooms and kitchen upgrades, there tends to be a lot of hidden nasties that you can't necessarily see. So we get those resolved first. And then sort of build out from there. So completely new floor coverings, new plastering when it's needed, redecorations, complete new furnishings. And we didn't need to do it in this property, but quite often there's sort of internal layout modifications that we like to make to sort of create spaces where people love to live in.

[00:34:10] Andy Graham: Yeah. What sort of margins do you typically aim for on your rent to rent deals, Alex? Because again, I think that this is something that I've seen a lot of people get wrong over the years. I think rent to rent is incredibly sensitive to the recurring costs of running things like this. So bills and maintenance and voids. What do you typically try and look for in a deal? At what point do you think this works for us?

[00:34:34] Alex Babouris: So, in order for it to be, sort of, manage the risk, I think we look for two times what we would get if we were managing the property. Once all bills and deductibles are removed, what we're left with is that two times what we would get as a management fee. If it is, then I'm happy. I think with our experience of next to no voids, the rents that we can get, I'm quite confident with those tangibles.

[00:34:55] Andy Graham: I think it's a good way to look at it because I've seen a number of deals that people have stacked up and I have said to them, look, if you're going to do this deal, you may as well just do it on a standard management basis because you're taking all the risk here for about the same amount of pay.

[00:35:09] Andy Graham: The question is, What's the point? I think you're probably, yeah, you probably want the deal just a little bit too much. And you've got to be quite pragmatic about that. One of the things that I often look for is I actually try and get the numbers in the deals to look in line with what I would want to see and expect from a deal that I was potentially purchasing after all my costs, including the mortgage.

[00:35:30] Andy Graham: So I like to see as close to 250 pound net per calendar month per room from the deal. After all the costs. And I think that's also a good way of looking at it. But rent to rent deals are tough to stack, aren't they? I mean, in terms of the negotiation, what were the sorts of things that your landlord was asking for and needed to see to make them comfortable?

[00:35:50] Andy Graham: And were there any concessions that you had to make or any key things that you had to make sure stayed in the deal? For example, do you have caps on the maintenance allowance or anything like that?

[00:36:01] Alex Babouris: So this landlord is not typical of the landlords we work with on rent to rent deals who typically want to really push their income, which is their gift.

[00:36:10] Alex Babouris: This landlord is a bit more, I would say, reasonable. He understands that we need to make a profit and he's happy with a fair return on his assets. So it's quite a nice arrangement for us. We, in terms of what stays in the deal, we look after everything internally, including boilers and plumbing and bits and pieces. That everything's structural. Everything external is the landlord's responsibility.

[00:36:30] Andy Graham: And Alex, do you have break clauses in any of your agreements, either from the landlord's side or from your side?

[00:36:36] Alex Babouris: We do. So typically we sign up for three years. We have a break clause at three. And yeah, we haven't had to exercise that yet. It's there for a bit of protection on both sides.

[00:36:44] Andy Graham: Well, it sounds like an absolutely cracking deal, and it's quite easy to see why you're the winner of the best sort of rent a rent agency as well. I think rent a rent's a really tough model to get right, but once you know how, I think it's actually quite easy to get it right and make it very, very profitable.

[00:37:00] Andy Graham: And I think doing the things that you've talked about, getting the margins in, working to really clear and sort of very black and white parameters, knowing when a deal works, knowing exactly when the deal doesn't work. Yeah. Getting the basics of it right, I think can allow you to build a really, really profitable deal.

[00:37:16] Andy Graham: The caveat to all this, I would say, and I'm sure you would agree that it's not easy. You know, there's a lot of time that's got to be invested, still investing 20,000 in a deal. It's a lot of money. It's not something to be just taken lightly. And I think rent to rent itself. It is a huge commitment, isn't it? It's a commitment to your landlord, to the tenants in that property, to the investment that you're making. Absolutely.

[00:37:39] Alex Babouris: Absolutely. You're carrying all of the risk for the hope of some reward. I think, although it's risky, and we mentioned that, I think the upside is sort of outweighs the potential negatives if they're done correctly. For us, the profitability or the opportunity for profitability and the complete control of the operation is, is ultimately what's, what's the benefit for us.

[00:37:57] Andy Graham: I agree. And I think the key thing there is if it's done correctly, isn't it? And I think you've really got to understand for anyone thinking about rent to rent for themselves, it's really, really important to understand how to execute this model in the right way. It is quite different to just buying an investment and it's very, very sensitive to the numbers.

[00:38:14] Alex Babouris: Yeah. Agreed. Cause you don't benefit from the equity or the, or the capital appreciation. I think I see a lot of people that are keen to scale and sort of say yes to deals that maybe they wouldn't if they sort of look with a fresh pair of eyes.

[00:38:24] Alex Babouris: But I think it was Warren Buffett that said you should say no to 99 percent of the things and yes to the one thing. And they're the things that make you wealthy. It's um, yeah, too many people rush into deals that don't stack and then are in that sort of getting burnt. So yeah. Absolutely.

[00:38:37] Andy Graham: Absolutely. I've seen it so many times. Alex, I mean, what a fantastic agency you've built. What a fantastic business you've built. What can we expect from the future? What's in the pipeline? What are your personal goals and aspirations with all of this? That's a big question.

[00:38:51] Alex Babouris: That's a big question. I think there's lots going on at the moment. We're pushing forward with Babouris 2.0 What that means is a fully integrated operator managing agency for shared and city living. So we are bringing pretty much everything in house right from interior design, space planning, maintenance, we've got build teams, creativity, we've got marketing in house, obviously property managers. We are looking to cover all bases.

[00:39:15] Alex Babouris: We're moving into the short stay market as well. We are tendering for public sector contracts. We're building a build team and we're looking to expand into different locations. Uh, we've been quite selective about where we might go next, but yeah, so in terms of business aspirations, that's it for us for the short term, but we are looking to be the, yeah, the leading UK operator of shared homes in the UK.

[00:39:35] Andy Graham: Fantastic. Well, I think vertical integration, I think is what they call that. And I love to hear that you've got such great aspirations and goals, Alex. And actually I've got no doubt whatsoever that you're going to go and obliterate them all.

[00:39:49] Alex Babouris: Thank you very much. We'll try.

[00:39:50] Andy Graham: It's been an absolute pleasure to have you on the show, Alex. Thank you for sharing your story, the journey. Thank you for sharing your advice. About management and all the tips and tricks and things like that, that I'm sure a lot of our listeners will be able to take a lot of value from. And for anyone out there who's listening today, I need to get in touch with Alex. Maybe I need him to manage my properties, maybe to discuss any other services. What's the best way? How can they contact you?

[00:40:13] Alex Babouris: Email's probably best. I would say alex@babouris.co.uk or call the office here. One of the team will, will pass you through to me and yeah, I welcome sort of all opportunities to speak to people, whether clients or just people here after information about Cambridge or HMOs. Very welcome to have those conversations.

[00:40:27] Andy Graham: Wonderful. Alex, it has been an absolute pleasure. Thank you so much.

[00:40:31] Alex Babouris: My pleasure. Thank you so much, Andy.

[00:40:39] Andy Graham: That's it for today's episode, guys. Thank you so much for tuning in. Hope you enjoyed that conversation with myself and Alex. I know I certainly did. Wow. I mean, to win that many awards across so many different disciplines, that says a huge amount about Alex and the type of business that he's built. I think that was a really, really inspiring episode.

[00:40:57] Andy Graham: Don't forget that if you want to level things up, heading over to the HMO Roadmap, like I said earlier on today, we have got our biggest ever sale on at the minute. You can get your hands on everything we've got to offer inside the roadmap in a premium subscription for 20 percent off, but that sale ends at the end of June.

[00:41:12] Andy Graham: So don't wait around too long. Go and get it now before it's too late. If you've enjoyed today's episode, if you've got 30 seconds to spare. Please, please, please leave a quick review of the show. It helps me continue to bring great guests like Alex onto the show. It helps spread the message about all the great work that Alex and all of you guys out there in our community are doing.

[00:41:29] Andy Graham: So if you could spare a few seconds, it really would mean the world to me and my team here at the HMO podcast. And of course, 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.