Overcoming Challenges, The Changing Landscape Of HMOs, And Risk Management With Ranjit Seehra

In this episode, I'm joined by community member Ranjit Singh. Ranjit is a civil engineer and he's been using his skills and insights and experience from civil engineering to help him build a HMO property business. I want to find out how he's been doing that, what challenges Ranjit has had to overcome to get where he is.

We're also going to talk specifically about planning restrictions, about the changing and evolving landscape of the areas that he invests in and how he has been dealing with these. If you're an investor just getting started, perhaps you're a bit further along on your journey, this is definitely an episode you want to stick around for.

Topics covered in this episode: 

• 02:30 - Ranjit's Journey into Property Investment 
• 06:57 - The Reality of Building a Property Portfolio 
• 11:22 - Adapting to Market Changes in Derby 
• 18:21 - Planning Challenges and Overcoming Obstacles 
• 26:13 - Defining a Good Deal in HMO Investments 
• 32:35 - Long-Term Strategies and Risk Management

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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.

Today, I'm joined by community member Ranjit Singh. Ranjit is a civil engineer and he's been using his skills and insights and experience from civil engineering to help him build a HMO property business. Today, I want to find out how he's been doing that, what challenges Ranjit has had to overcome to get where he is. 

Now, we're going to talk specifically about planning restrictions, about the changing and evolving landscape of the areas that he invests in and how he has been dealing with these. If you're an investor just getting started, perhaps you're a bit further along on your journey, this is definitely an episode you want to stick around for. Please sit back, relax, and enjoy today's episode of the HMO Podcast.

Andy Graham (01:19.886)

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 (02:26.638)

Ranjit, thank you for joining me on the show today. 

Ranjit: My pleasure, Andy.

Andy Graham: Good to have you here. So Ranjit, you are an experienced investor. You've been buying HMOs for a long time now, but you have an interesting background and some skills and experience that you have utilised to build your own portfolio and provide services to other investors. I'm really interested to talk about this with you today and maybe draw on some of those specific skills and experiences because I'm sure there's a lot of stuff that you know and do on a daily basis that actually our listeners really could benefit from. But just to get this kicked off, Ranjit, can you tell us a little bit more about yourself, who you are, what your background is, what led you into property and what your business currently looks like?

Ranjit: So life at the moment is very different to what it was six years ago. But my passion for property, you might say, or construction generally, was from quite a young age. As a teenager looking to do a career in something. And all the, I think all the lectures were saying, go and do this, go and do that. And then somebody told me about civil engineering. I thought, what's that? And when I found out about it, it was about building bridges and roads and big stuff, I got me excited.

Through my training, through my education, charter civil engineer. So when you think of big projects out there and you complain about the roads being dug up or the sewers being blocked and stuff, that's the kind of thing I do, not to cause the problems, but to solve the problems. So I had a wonderful career in civil engineering, 30 years. But as an Indian, I'm a theek by faith, but an Indian by origin, I would say, there’s no Indian unless you're only an Indian if you have at least two jobs. So alongside the employment with small consultancies and big contractors and the water company for nearly 20 years, I had a side hustle as well, which was the dabbling in property and drawing straight lines and curvy lines for plans and things like that. And about five or six years ago, the opportunity came where I could let go of the career, the paid employment and go self-employed.

And because I had this sort of background side hustle, there was an automatic switch over. It took a while because COVID hit and stuff, but a couple of years through and we're a bit more settled now. And the property side, well, yeah, as soon as I graduated, my friend, my brother, we're also graduates. We put a few quid together and bought a house, wanted to buy another, wanted to buy another, but then life got in the way. We got married and we have kids and it became really difficult. So we actually sold up and...

Ranjit Seehra (05:08.43)

and upgraded our houses, upgraded our cars. We're talking 20 odd years ago, in just the turn of the century, 2003, 2004. So we lived it up then. And it was like 10, 12 years later where we decided that the kids were a bit older and we're a bit more settled. And my business partner said we should be investing in property again. So we restarted our journey in 2015, 2016. And the thing we did was HMOs. So we live here in Derby. We looked everywhere we could.

And decided that Derby was big enough pooled for us to find out the whole niche. And, know, we've got half a dozen HMOs. Nothing exciting, nothing, we can blow the numbers away, but they work for us in different guises, in different ways. They've created this small portfolio. So that's kind of our property journey. And they have done this with a JV partner.

Andy Graham: Thank you for sharing that with us. And it's really nice to hear you say at the end there that actually what you've got now in terms of your portfolio, it does exactly what you need. You've built what you wanted. Because I think, and I'm sure you'll agree, but you look across social media, it's very easy, isn’t it, to see people doing lots of schemes, appearing really busy or maybe doing bigger schemes. And actually I do try and remind people that just do what you need to do. Actually, it doesn't have to be an empire.

A good portfolio can get you out of a job. It can give you all your time back. It can give you the freedom and flexibility to do what you want with your family, to go away. You may not necessarily want super yachts and fast cars and things like that. You may actually just want a bit more stability and a bit more financial independence. And it doesn't have to always be about building a huge portfolio. And I think as well off the back of that, building big portfolios requires a very different foundation to building smaller portfolios and think a lot of people who start with the wrong footings find this out later on and it's very difficult to actually scale up. But some people try and overcomplicate the process early on. And I don't know if you've seen this, but they procrastinate a little bit. They hesitate, they set some goals that are perhaps a bit too big and they never actually get started or actually it hinders them at the very beginning. So it's really nice to hear that you say that. And I picked up on something else that you said, Ranjit. You mentioned that.

Andy Graham (07:26.03)

property initially, or there was a bit of a side hustle. You had a job, was a bit of a side hustle in property. Do you think that that's changed now? Do you think it's still possible to have a side hustle in property or do you feel like actually being a property investor is more of a professional career now?

Ranjit: It doesn’t go against the grain. I'm going to say it’s still a side hustle. Yeah. And the reason being I have seen over the last eight, nine, 10 years, so many start and fall by the wayside. So not everyone's going to make it through that first try and say, I want to be a property sourcer and add 10 HMOs by the end of the year. Those big dreams sometimes don't happen. You have to face the reality. This isn't for everyone. Those who make it, you do see the success and that's all over the social media if they choose to. But the really successful ones won't be over social media.

Then you have everyone in between. And a lot of those I have seen friends and people I've associated with fall by the wayside. And this sounds depressing through bankruptcy. There's exactly, you said they grew too fast, too quickly and couldn't handle it. And when you step up one property, two properties, three or four or five is manageable. After that, system the processes and people don't do that. And then they get overwhelmed. They borrow too much money from people on PGs and so forth.

Even through senior debt and then they can't handle it. It's very easy to make money. It's harder to handle it. So for me, I think it's a side hustle until it becomes one of many streams of income. So we'd train through progressive property and that thing sticks in my head, multiple streams of income offset one risk against the other.

Andy Graham: One of the things I love about our community and the podcast is that we get to feel so many different opinions and it's really easy when you're in your own lane to just get kind of blinkered and a bit focused on your own opinions. And it's really nice and sometimes quite refreshing to hear different opinions. And actually it's something that you said there, I think there is a lot of truth in it. And I think actually in reality, there is still scope for anybody doing anything to buy property on the side. I think the bit that I'm struggling with increasingly is how restrictive

Andy Graham (09:32.076)

the government made some of the policies that control the lettings sector. And I think actually buying and refurbishing and refinancing, HMOs, I actually think that that's the easy bit. I actually think that the hard bit is everything that comes after. And it's not a sexy bit, is it? Everybody is a bit more interested in the buying and the refurbishment and the refinancing because that's where things can look good and you can share it and you can make a bit of money.

But the management, I think was when the real work sets in and look, we're still, in my opinion, still quite early days with some legislation that is coming down the barrel with us and figuring out exactly how that will all work. I think another thing is, and I don't know how you feel about this, but it's changing the actual, market place itself is changing the type of housing that people want. The behavior of tenants is changing the restrictions on planning and things like that, they are all changing. And I think as a consequence of all of these ingredients, strategies are changing and evolving. We talked a little bit before we kicked off about where you invest and you told me one or two interesting things. I'd like to talk about that a bit more Ranjit. You invest in Derby, don't you? And Derby having as for a long time been a target for a lot of people getting into the HMO space for a lot of reasons.

But perhaps that's changing now. And whilst I don't really want to pick on Derby for any particular reason, I think it's a good example of this point that actually things do evolve and change over time. And I think it's important to be aware that it's not as easy now to just buy, put your feet up and expect for the properties to go up in value and for the rent to just keep coming in and keep all your profits. It's changed a little bit, but tell us about Derby. Tell us about how the market there has changed and how you have been adapting your model to those changes.

Ranjit Seehra (11:23.86)

Some great points there. The landscape is changing legislation. So if I just touch on a higher level sort of economic thing, the UK is at a point now where youngsters, I'm thinking people your age and younger, are never going to be able to afford to buy a house. And therefore, their thinking of renting for a long time is becoming the norm. The market is adapting to that. And the legislation that came in five or six years ago was when we saw it then the tax changes, the section 24 rules on personal income from property and mortgage relief and so forth. Those we could see then, so if you look at the bigger picture then it was about making sure the housing stock was still available and knowing that the individual landlords, the small landlords couldn't actually provide the capacity. 

And that's why people like Lloyds, Marks and Spencer's or these big organizations are now thinking about mass market rental properties. So that's economics at the macro level. And that reflects in Derby. So Derby, looked around eight, nine years ago and we're showing invest, where's the cheapest place. And cheap isn't always good quality. And then we looked at Stoke, Sheffield, Lest, Nottingham, maybe a little bit further, Doncaster hallway. And in the end, we found that actually on your doorstep is probably the best place. It's near, it's nearby, you've got low overheads in travel and so forth, management.

And there's a big enough pool if you know what you want. So we invested in Derby and back then there was no restrictions, there were very few restrictions. We cast ourselves five or 10 years ahead and worked backwards. So we put some things in place where we have got properties in our names, we've got properties in limited companies. So we kind of got the balance to be there or thereabouts where you're not feeling the pain with one, in the changes in one area to the other. So it's splitting the risk. But with every city.

The local economy is, yes, we like all this activity, but a few people complain. The politicians get a bit worked up about outside investors or whoever suddenly turning their nice areas into ghettos. So they start thinking about how they're doing legislation. And so we've got Article 4 coming into Derby next year. So a couple of years ago, we saw this and we said, right, that's it. There's too many people coming in. The cost of properties to purchase and to refurb is now sky high.

Ranjit Seehra (13:45.998)

So yeah, I'd still see people buying 150,000 pound properties, spending another 150K on it, 300K in, 400, 450,000 pound valuation. Great. Get your money out. But as we saw when we, so we don't do that model, we saw through the COVID, we nearly got rinsed. We had 50% occupancy and that was just enough to keep the bills paid. So if you're looking to use HMOs as a strategy for passive income, et cetera, build in a COVID factor, build in something that'll take out 50% of your income. See the margins, but people at the moment are running on very tight margins and it's worrying. Yeah. It's very worrying. But if you can manage that risk, great, get through it. So what we're finding now is people are now just saying, we've got article four coming. Where should we go next? So the investors or people who want to make money, whatever you want to call loan sharks, they're moving on to newer pastures. Okay.

And there's a lot of, I'll do this HMO and sell it. So people are investing, doing them up and selling them and they're ready-made deals. But just, just do your due diligence. You know, know your figures. If you had to sell that £400,000 valued house at £180,000, £200,000, would you get the sale? Yeah. Is there a big enough market for the HMO resale market? So there are some risks and stuff, but, Darby, I mean, it's getting to be like everywhere else now. Article four is going to come in.

So advice I'm giving people is it's a bit of cloak and dagger now for a few months. After that, when it comes in, the rules are the rules. But between now and then try and get your properties tenanted. Three or more people tenanted, you've got HMO use established. Get that in the bag, whatever means it takes, reasonably and legally, and then you're in a good place. So you know, adapt to the change. The change is always going to be there. Adapt to the change.

Andy Graham: I’ve seen this happen in a number of cities over the 15 and 20 years that I've been investing, happened in a number of cities where I've been investing. I think the first reaction is one of disappointment. All of a sudden there's a barrier, there's an obstacle. It's much harder to buy what we want. And inevitably what that does is it creates a bit of a buying frenzy initially. Everyone rushes out to get something, but it also starts to push prices up and there is a fundamental, a physiologic change in the asset values in that location.

Andy Graham (16:10.062)

And I've seen this really scare people to the extent that they have decided to go and invest elsewhere. And that always, I find that quite sad as well, because I think from my own experience, article fours can be a good thing. actually, once an article four direction is in place, so long as it's not coming to force too, too late, it limits the supply. Actually, it puts a control on that type of business operation.

This is just my opinion, but if your, your objective is long-term, you've got long-term goals of holding onto assets, generating good cashflow, that stands you in really good stead. It's like, I've talked a number of times on the show to people about this, but it's like having an ice cream shop down by the seaside and the council say, look, we're happy for you to do this. And actually what we're going to do is we're going to make sure that there aren't many other people that can do this as well. That's fantastic as a business. And some of the stuff that you said, talking about having contingencies in your business so that if there is a black swan event or things changed like legislation, taxes, things that make it more difficult to extract profits from our business, it still works. And I think all of that, and for me, and I suppose circling back around to my question to you earlier about the side hustle piece, I think this is why I think more and more that investing in HMOs is becoming more of a profession that you have to really take a lot of time and thought to understand.

Because it's quite easy to see on a service level, article four directions coming in, it no longer works. The prices have changed and yes, it's going to have an impact and yes, that could be perceived as a detrimental impact initially. But I think there certainly are advantages and I think approaching this whole process like a business is really important and perhaps more important than ever. I mean, you've taken some of your skills from your civil engineering background, haven't you Ranjit? And actually you've got an architectural design consultancies, is that right? 

You've got skills that perhaps some other people don't have, but that perhaps gives you an advantage in other ways. Article four direction of planning, that's obviously something that you are challenged with. But what other challenges do you see from a planning perspective, perhaps more specifically, and how are you able to use your skills to overcome some of those challenges?

Ranjit Seehra (18:21.966)

I think in any background that you come from, so whatever your origin was, as in terms of your career wise, there are always transferable skills. Okay. So if you've been an accountant, managing money should come fairly easy to you. With my background in engineering construction, the ability to see the end product, and as I say, to plant and land the plane on the penny. So the ability to get to the end target with little variation to what you set out. That's my skill set. So I can do that fairly, like a CVN product, space design it and financially land it there or thereabouts.

Andy Graham: And is that a process of reverse engineering for you Ranjit, when you're taking all of these things into consideration? Planning challenges, budgets, specifications, timelines. Do you start with the end in mind?

Ranjit: Absolutely. So with any project there’s time, cost and quality. So if you know the quality of the product you want, you know, you can set the time and the cost associated with that. But the massive engineering, you when you're a career, when you're planning to spend the 20 million pounds on a project, you can't be 20, 30 or 40 million. It's going to be 20 million, give or take half a million. So you've got to plan. So there's an old adage about if you fail to plan, you plan to fail.

So without that plan in place and quite often people say, yeah, let's get it and we'll start the refurb. And the number of conversations I have to start at the end of game. So what do you want to have at the end of it? It's quite different to what they're thinking now. And we sort of plan it backwards and say, right, that's the end game. Let's now pick the best route to get there. And it may not require planning now. So currently I'm telling people nice house, liquor paint, maybe the chain electric, put some fire safety in and get three, four tenants in there, get it up and running as a HMO.

Ranjit Seehra (20:05.454)

You had to secure your rights. So the end game, and then what we can do is this conversation this morning was we could build an annex. Just attach us to it. All you do is now put a door in so we can build it separately and just add another extra room by going down the planning route of planning permissions and so forth. But that word of planning, reverse engineering, as you said, that is a skill, everyone should learn and should just, if you don't know it, then get someone on board who can see that. 

Andy Graham: Yeah. I think that that's a really great bit of advice and sometimes I'm not sure people know exactly what they need to know and if they do know who can even help them. We talked very briefly before we kicked off as well about some other planning challenges like listed buildings, conservation areas. These are the sorts of projects that you're tackling on a regular basis. How do you overcome those sorts of challenges, Renjit? And what sort of advice could you share for anybody looking at projects that might also be constrained by these similar factors.

Ranjit: So when you run any business, particularly in property, I think I've boiled it down. are 21 skill sets you need to be aware of on the end-to-end property business from finding a deal to then renting it out. There are 21 roles you play. And as an individual, you cannot play 21 roles. You can't be the accountant, solicitor, et cetera, et cetera. So you've got to find people who can fill those gaps for you. Either people that you seek advice from on a free or paid basis, or people that you associate within mastermind groups, property meetings, et cetera. You'll go to guys, you'll go to girls that you can get that bit of information, which just allows the flock to clear a bit and you can see beyond the end of next month or something. So when it comes to raising finance, you want the exits. We take more due diligence upfront to make sure we have an exit that's not guaranteed, but as guaranteed as possible. What you don't want is buy in a rush and then you come to refinance this.

Ranjit Seehra (22:03.0)

It's got some movement over there, some cracks over there, which you ignored. Or there is something else associated with that property, which the mortgage lender doesn't like. So think about that end game and work backwards. And some of the classical things like grade two listed buildings, working on one at the moment, it's 12 months in planning. As we're chatting this morning, chatting before we came on, there's an email ping that I've got to read. It's the first line, it flashes it was a bit more hopeful, optimistic.

So I'm hoping we've almost got that one over the line, but that's taken 12 months plus. And we had to call in a heritage specialist to give us the grade two sort of impact report. We had to change the plan three or four times. And so you've got sometimes capitulate, sometimes you had to fight, but it's knowing what the rules are. So grade two listed building, grade listed building is hard. Grade two listed, grade two star listed is even harder, but not impossible. Right people around you will get you through the process, costs a bit more money.

But these tend to be grand buildings. So the finances will be bigger as well. It costs more to do, but we'll probably get a higher GDP, better rental rates, et cetera. So, you know, don't try and squash shoeboxes into grade two building.

Andy Graham: I think the key thing that you said there for me is that you need to know what to do. You don't necessarily have to be the person that does it. And these consultants that you can outsource services to impact assessments that you mentioned, you can do designs and drawing and architectural studies, those sorts of things. There's a lot of moving parts to projects. I think when with, I don't know how you feel about this, but I think his article four direction becomes more of a mainstay across the country.

And I can see a point in time where pretty much everything is under, or in fact, they just remove the permitted development right to convert residential into HMOs. I think it's increasingly important to understand that there are different types of limitations and unique obstacles that can actually, with the right approach, present themselves as opportunities. But it's just understanding.

Andy Graham (24:09.504)

what you need to do and the fact that, like you said, these projects will take a lot longer in planning. So that has to be built into the timeline. That has to be built in to the cost on the budget is going to cost more to get it from A to B. But I do think that these sorts of projects are going to be increasingly on our radar as naturally the supply of pretty sort of cookie cutter type of stock does to some extent, start to disappear and I do think that that will happen particularly in the prime areas.

Ranjit: Absolutely, I can just chip in there. The rules change, you change to suit the rules and learn the rules, as simple as that in many ways. And Article 4, I I get a bit flippant about it, this politician sort of election winner, which commonly is, and in Derby it has been for all the political parties. But actually, you look at the communities that the HMOs are predominantly in, and those communities have changed.

You've got to control the proliferation of HMOs or as said, the wild west of HMOs, unrestricted development of HMOs. Because if you're a whole street of HMOs, every summer they can be empty if there's students or if there are professional areas, going to be a different kind of feel to it. So I think politicians are doing the right thing of trying to maintain some sort of community feel in their area by just spending the HMOs out of it. So that's all they're trying to do. And that's what the rules are geared up for. So rather than have three or four in a row, they can spread them out a bit. They're broken up. They're still there because the need will always be.

Andy Graham (25:41.844)

My opinion on Article Four Directions, generally speaking, I am in favour of them. They've helped me build really good, very robust businesses that are really valuable, quite rare and protected. And that's unique in business and it's definitely unique in the real estate space. I think combined with good location, good service provision, good specification, and a really good understanding of what you need to do. I think that that is a great recipe for business success.

But it does need to be taken, I think, quite seriously. We talked a little bit about economics before we kicked off and I want to get your opinion on this, Ranjit. You've been doing this a long time, but the way that I want to, I want to ask you what you think is a good deal looks like, first of all, when you're looking at HMOs, I think a lot of our listeners love the answer, love hearing the answer to this question. And the reason I like asking it, is it because it is different for everybody, but what does a good deal look like to you, Ranjit, and why?

Ranjit Seehra (26:37.838)

Okay. So when we all start off, the only deal around that should be a deal or stacks up is one that gives you infinite return. Okay. But those come very rarely and you're very highly leveraged on those. So for us, mean, on a HMO, it's going to be at least double digit net yield. Okay. Post costs, post mortgages and so forth. So if you need to leave money in, need to leave money in, that's just economics. You're investing, you're an investor, which means you've got to have funds to invest. So you're going to have to leave some money in.

If the deal stacks up, you got it at a cracking price and you've managed to get the refurb done really well and cheap or low cost, then you might have some headroom. But all our deals, we've got a little bit of money left in and that's fine because that money could give us another project. Risk is bigger. We could put it in the bank, but if it's giving us double digit returns, what's the problem? And normally it's 15%. I would look at it as a minimum.

Andy Graham: Is that 15 % on your capital invested?

Ranjit: Yeah. So capital employed, we look for 25 % on capital employed, but with the changing market and so forth, it's probably more like 15 % now.

Andy Graham:  That is so refreshing for me to hear because I couldn't agree more. Whenever I answer this question, I always put 15 % return on capital employed down as a pretty good benchmark to work towards. If you were buying something off the shelf, that might be more like 12%. If you can find a way of engineering some good value into it, perhaps you can convert a garage, go into the loft, do a rear extension, or perhaps you can just buy a good value and add value through refurbishing what exists. You can engineer that value up.

Andy Graham (28:17.066)

One of the things that I've seen so many times is expectations being set so high about the amount of capital that can be or should be recycled out of a deal because the intention is to go on to do the next one. But because they are so limiting those investment criteria for some people in some locations and at certain times of the year, they end up never doing the first deal. So the second deal certainly never happens, which is really disappointing. And it's just really refreshing to hear people like you Ranjit give your impression on this is what a good deal looks like and actually it's okay to leave money in ideally we wouldn't I think we can all unanimously agree on that we'd like to get a bit more money out of the deal but it doesn't mean it's a bad deal.

Ranjit: Give it three years. If you can't go the speed you want to go at, 10 in a year, one every 10 years might be too slow, but you might do one every two or three years if it's your own funds or it's very close funds. If you say, I don't know, this argument says, so we've got typical deals, we bought at about 120k. So in Derby at the time you could buy from 120k, a mid-terrace, end-terrace or a medium-sized terrace, 80, 90 square meters or a semi of the same, for the 195, 100 square meter semi. And we were typically spending 80, 90 K at the time. So in random terms, we were about 200 K in. And those properties on commercial, semi-commercial valuations of five bed HMOs, my business partner said, we're not doing six, seven, eight bed HMOs, because then you get a different clientele. So the fours and threes, fours and fives we've got aren't sexy, but they turn over.

Those, I think were 200k in, they valued at 275k. They might be bit more now, but we must have left 50k in, 150k out on the borrowing. We were happy with that because here's the other thing that we sort of risk. My civil engineering was about risk management. How do you deal with or deliver a 20 million pound project within a percent or two? So we said, okay, we fix the mortgage for five years and then there are some costs that come in unforeseen.

Ranjit Seehra (30:21.858)

How do you build those in? And also we wanted our mortgage exposure not to be above a certain percentage or a certain value. We fixed it, I think, 600 or 650 a month, so interest only. So with the rates, so not about taking the lowest rate and the maximum money out. Sometimes you get a higher rate, but take a little less out and you look at the overall picture. And for us, it was about balancing that if there was a problem, how much liability would we have with an empty property? The black swan event.

And so we said, there'll be no more than one and a half rooms rent. I think it roughly worked out the time or would be the mortgage we want to maximise that per month. Then you kind of do a very strange equation backwards. Well, what can I borrow based on that amount that we weren't happy to pay out up to? And it just happened to be 60%, 50%, 70 % or whatever the percentage was. We left some money in the deal.

Andy Graham: This is some good advice. And again, it's nice to hear how you interpret what a good deal looks like to you. And also the pragmatic approach to investing in real estate in the UK, which is to take a long-term view on most things. I think it's a really good piece of advice to look at just fixing in for long periods, even if you know that that's not likely to be the cheapest solution. What it does is it gives you a certain degree of predictability. And I think. keep it really, really simple and to remove a lot of the worry and concern that comes with investing, particularly in HMOs. If you can do that, in the worst case, so long as you are in a good location where you have a great deal of rental confidence, so you have done all of your research and you know exactly what the going great for rents are, where you'll be in the market, a little bit like selling your car on auto trader. You know exactly where your room is on that listing, who's going to be above you, who's going to be below you.

And you price everything just right. And it's in a desirable location relative to the value that you're offering. It is still such a simple model. And no, you might not get all your capital out. Yes, you might leave a bit more in the deal, but you will be okay. And it'll probably in a few years time, all be forgotten about. You'll have moved on. You'll have probably got the experience to raise a bit of finance to do the next deal. And that is how so many people actually do build really good property businesses.

Ranjit Seehra (32:34.734)

Slow and steady wins the race. I've always grown up with that. There was a funny thing, was digressing a bit. There was a video I shared recently on Facebook. It was actually a literal race between a tortoise and a hare. And they had up two lanes. And you're not going to believe it, but the tortoise won. A real race between the hare and the tortoise. The hare went so far stop, just stopped looking around. The tortoise had plotted along and got to the end line first. And I was like, that's me. I like that.

So the harsh reality of the fable is the realities is true as well. So yeah, if you go with your pace, you don't have to copy anyone else. Your pace is your pace. You mainly want three really high end HMOs. Fine, go for that. Or 20 cheaper versions. Think about the money because the money's got to be working for you. Yeah, it's great having 20 properties because they're costing an arm and a leg and you haven't got to find out as you're borrowing money. If you're borrowing from investor B to pay investor A, that's not the right way to do it.

And that's where people get caught up. They get to scale. They try to scale up too quickly without the skillsets around them. Letting agents, we've never left letter property. We use agents. There's cost associated, but we get the advice for free. So we'll phone up, Olly and say, Olly, you know, we're looking to do this one, do you reckon? He goes, yeah, do this really top end of that area. He goes, you know what, or you might say, you don't want to get the clientele of that 700 pound a room. This is more like a 500 pound room rent area.

The market at the moment is what people are looking for. Yeah. So if you're going to be ready in the next four or five months, that's the market now, not the market from yesterday. So we may temper it down a bit, maybe push it up a bit. So student lets, we don't do more than three bed student lets because the advice we were given, we spoke to student specialists who did student letting because students like three and four bed properties. They like to be in small groups. And I hark back to my university days, we stayed in a flat, three of us, yeah, two of us shared a room. One got the single room. We had the large double room and it worked out and that was quite nice. So if you're six of you, seven of you, 18 in a house, I don't know how that would work. The dynamics are quite, quite different.

Andy Graham (34:47.694)

There's a couple of things there. I think part of it in my experience is definitely location dependent. Sometimes depends on the actual type of housing, areas and towns and cities where there's historically a lot of workers type of housing, terraced housing that's a bit more squeeze. I've seen people try and squeeze five, six bedrooms into those sorts of properties and, it does create for quite a limited living experience. But I think you are also right in that people's. attitudes are generally changing. We're not, most people are not looking to live in a house with lots and lots of people. They would have given the choice, prefer to live in a house with fewer people. And I think that that is in some ways, dictating the market, but certainly on a local level, dictating things. And you said it yourself, and I think I'm going to coin this because I really, really like it. Good investing doesn't have to be sexy. Often isn't sexy. It's just about making smart decisions and just doing it consistently.

Ranjit: Yeah, finding your lane and then saying, we'll stick to it. A bit of advice I got was, you may have heard of a chap called Grant Cardone. The 10x guy in the States. So we're going back five, six, seven years ago. So I did a little bit of a side venture in IT with a chap called Darren, Darren from Penilapool Way. And we hit it off and we decided we were going to do something. And along that journey, we were going to an event in London.

Ranjit Seehra (36:07.668)

This was an event hosted by Nick James of Expert Empires. Just give me a shout out to them because these people have played a role in just showing me the path. We got wind that Grant Cardone was coming to this event. Darren turns to me, just chatting stupidly, goes, let's interview him. We were thinking on the day we try and get five, 10 minutes. Obviously, Nick's paying him a lot of money to come over. We put this thought out there and within a week we had Grant Cardone, a video cast into my lounge for an hour and we just called it 20 people friends. So we've got Grant Cardo lined up for an interview on Friday. Can you join us? So we had this desire to interview him in London for 10 minutes, turned into an hour with him. My takeaway from there was anything is possible if you focus on it. But what he said to us, somebody asked him a question about, you must have carried lots of risks. He goes, when we look at deals, we de-risk everything.

Yeah, the only risks which are left are the ones we know about, we can quantify. So, and that was like profound. I thought, yeah, we talk about taking risks actually, as I think you said earlier, calculated risks, measured risks, is knowing what the worst case scenario could be and planning for it. If you think the interest rate might double in the next 12 months, build that to your purchase price. Yeah. Or build it to your room rents, build it to the number of rooms you put in the house, et cetera. So again, reverse engineering back, but it was quite profound that trying to de-risk or eliminate risk if you can. If not, then de-risk it and be mindful of all the risks and quantify them. 

Andy Graham: Thanks for sharing that story Ranjit, I think is one of the fundamental principles, isn't it, of good business and real estate investing is finding ways to mitigate and reduce those risks. And there are so many ways. Can you remove it all entirely? No, there's always a point at which you have to take that leap of faith, but hopefully it's not a particularly big leap. And hopefully you already know what you would do if in the worst case, things didn't quite pan out, how you would get out of the deal or how you would.

Andy Graham (38:12.088)

pay that investor off or what you would do if the valuation didn't come in. That's really just the basics of good planning. And again, I think I'm going back to what you said earlier, starting with the end in mind, reverse engineering that deal to the offer that you make and moving forward from that point is a really good, very sound approach to buying properties and certainly buying HMOs. Ranjit, it's been a real pleasure having you on the show today. I think we've meandered through a number of different topics and it's been interesting to get your insights and experience and opinions on a number of things. For anyone listening today that might want to reach out to you, where's the best place to contact you?

Ranjit: That's a real good question. I haven't got an answer for this one. I do bit of stuff on social media. I don't run training programs and things like I used to do some mentorship. So we might launch something in the future, but if you want to connect, go through Facebook, Ranjit Seehra, as it is on the title there. Just drop me a direct message. I've got too many friend requests, unless I know you, won't friend you, as they say. If you want to connect, go through Messenger, drop me a direct message and we can connect that way and then bring you a bit closer because you made the effort to go and find out a bit more about me. 

If I can help people, you'll see me on Facebook and Twitter and places like that, dropping advice in and just helping people either avoid mistakes, yeah, or at least be aware of the hurdles that they're going to come across as they go along on their journey. I see the unknown unknowns, somebody knows about them.

Andy Graham: Thanks again. It's been an absolute pleasure. It's been great to catch up with you and have you on the show today. And I'm very much looking forward to seeing what you go on to do in the property space.

Ranjit Seehra (39:51.736)

Thank you very much Andy, it's been my pleasure. All the best. Thank you.

Andy Graham (40:01.294)

That is it for today's episode, guys. Thank you for tuning in. Hope you enjoyed that conversation with myself and Ranjit. I thought it was quite a refreshing conversation. Ranjit shared some really honest opinions and I think just set the record straight on a number of things. Don't forget that if you really want to level things up in your own HMO property business, perhaps you're just getting started. Perhaps you're well underway, but you just need some help to really drive it forwards. Make sure you check out thehmrorodmap.co.uk. 

Everything that you need that I have figured out the hard way is waiting for you inside there. Plus you get everything that our community has contributed to as well, including masterclasses, case studies, loads of deal analysis, loads of resources and templates that you can download and a whole lot more. Trust me, if this existed when I was just getting started, I would have been able to achieve 10 times the amount in a 10th of the time. I know that sounds like an exaggeration, but trust me, when you get inside the HMO roadmap, you will realise exactly why? 

And plus, if you haven't already joined, come and check out the community, our free group on Facebook. That is a great place to find guidance and support. You'll find me in there. You'll find Ranjit hanging out in there and lots of other, in fact, 10,000 of us members all on hand to give you as much guidance and support as we possibly can. We know it's not easy investing in HMOs. That is why we're all there. It's to support each other and to help each other along the way. That's it, guys. Thank you again for tuning in. 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.