When to Sell Your HMO (And Why Holding On Could Be Slowing You Down)

In this episode, we’re talking about when it might be the right time to sell your HMO – and why holding on to it could actually be holding you back.

At some point, the decision of whether or not to sell your assets is something you'll need to give serious thought to. So today, we’ll explore the different scenarios where selling could be a smart and timely move.

But to be clear – this isn’t about convincing you to sell. Far from it. It’s about helping you prepare, so that when the time does come, you’re in the strongest possible position to get the very best return from your HMO.

Topics covered in this episode:

• 01:21 - Understanding the Right Time to Sell Your HMO
• 02:31 - The Importance of Selling in Property Investment
• 04:25 - Seven Reasons to Consider Selling Your HMO
• 19:47 - Preparing for the Sale: Building a Sellable Asset

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Transcript

Andy Graham (00:02.671)

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

Andy Graham (00:40.782)

In today's episode, we are discussing when the right time to sell your HMO is and why holding on could be slowing you down. At some point, at some time in the future, the decision as to whether or not you should sell your assets is something that you will need to seriously consider. And today we're going to explore the different scenarios and situations where that might be a very serious consideration for you. But today's episode isn't about trying to convince you to sell, far from it. But it is about trying to make sure that you're prepared so that when that time does arise, you can get the very most for your HMO. Please sit back, relax and enjoy today's episode of the HMO Podcast.

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 (02:31.363)

Welcome back, gang. So today, we are discussing when to sell your HMO on, why holding on could be slowing you down. Now look, this is a question that most people in property avoid. We love to talk about buying, don't we? About scaling, about refinancing, pulling money out, about cash flow. But rarely, rarely do we talk about letting go of an asset that we've built. Unless, of course, we're talking about flipping properties as a strategy.

But here's the truth, selling is part of the process, not always, but definitely sometimes. And when that time comes, it can feel like a really difficult decision, especially when the message from so much of the industry is buy and hold forever, build for cash, loan, never sell. But is that always the right approach? Well, I'm not so sure. Life moves on. Priorities do change and the market changes and you change. And I think that we do ourselves and our business a disservice by pretending that selling is some sort of failure or that it only happens when something potentially goes wrong. We only sell when we need to get out of the deal. 

Well, in today's episode, I want to challenge that. I want to normalise the idea that selling an investment asset could be one of the most strategic and liberating and sensible moves that you make. And depending on what you want next, either financially or personally, it can absolutely make sense. Now, here's the thing. It is just a fact that most investors will sell at some point. And when they do, it's those that have actually thought it through, that have planned for it, that have prepared for it. They are the ones that will stay in control of the process. They'll call the shots, they'll get the right price and they'll be able to move on with momentum. The last thing you want is to be faced with this decision about whether or not to sell or potentially worse, having to sell and not being able or not being in a position to get the very most or what you deserve from your asset because you haven't been running your business in the right way. Today, we're going to make sure that that never happens.

So I want to kick today's episode off by discussing seven reasons why the smart investor might choose to sell a HMO. The first one is quite simply because there may be a point in time where you just want to do other things with your money, right? Maybe something more hands off like the stock market. Maybe just you want to de-risk and simplify your life. You've done the work. It's time to just earn that reward or take that reward. The reality is, despite what a lot of people say,

Andy Graham (04:52.406)

running and operating HMOs is far from passive. Even if you've got a good managing agent in place, it just simply isn't a passive process. There are so many decisions that you need to make as a landlord that are beyond the scope of a managing agent. There are times and circumstances where things go wrong in properties. There are issues and challenges with tenants. Yes, an agent might be the first port of call if you like, but there are so many things that will just land on your desk. If, for example, a tenant stops paying and they end up in significant arrears or you have major issues in the house from a behavioural perspective, you are the person who's going to have to instruct a solicitor to potentially serve a notice or take somebody to court and follow through that process. And if you do this long enough and you have enough properties, this stuff will absolutely happen. It is just part and parcel of being a landlord, even in the HMO space. 

So there will more than likely come a time when you just want to do other things with your money. It might be age related, it might be other circumstances, maybe you have a family, maybe you want to move away and you're going to be further away from your assets, whatever it might be. The idea of a more hands-off investment and a method of de-risking where your wealth is, is potentially something that you will want to do. And don't be afraid of exploring that decision. If that is something that is happening in your life, then don't be afraid to lean into the idea of selling your HMOs. 

The second reason is that the cash flow may no longer stack. Now, there are so many reasons why the cash flow in a deal might not stack. Hopefully it isn't at the beginning of the deal because you've got your numbers wrong. That isn't acceptable. You've got to get that stuff right from the outset. But there are things that might happen along the way. So I'll give you a really good example, probably the most obvious example from the industry. Student lettings has existed for donkey's years. And it used to be the case that student housing was pretty well spread out around a campus. Well, over the last 20, 30 years, housing requirements have consolidated closer and closer to campuses, or certainly they've consolidated more and more into the more popular areas where students want to live. 

So if you've got a house or a property on the fringe 10, 15, 20 years ago, that may have rented all day, every single day with no issues whatsoever. But now, things have changed and the cashflow may no longer stack.

Andy Graham (07:09.618)

You might have to work a lot harder to fill that asset, to keep it filled with tenants, to keep it cash flowing. And there comes a time when you might have to accept that it just isn't what it used to be. So what do you do? Do you take your money and run? Do you reinvest your money somewhere else if that asset is no longer performing? It might be that an investor that has a better appetite, who's prepared to work a little bit harder, maybe come and turn that student HMO off, previously student HMO into a professional HMO, refurbish it, use the planning permission that it maybe has and do something different with it. 

And that might not be the thing that you want to do as a landlord. You might have held this asset for a long time, be thinking it's time to do something different with it now. So the cashflow may no longer stack. That's just one example, but there are many others as well. Maybe maintenance and bills creep up on you. Maybe management costs eat in, maybe the interest rates, maybe all of this stuff all starts to bite. And you're wondering, is it really worth having all of the capital that I've got tied into this deal, is it really worth the cash flow that I'm getting off the back of it? It's not for me or anyone else to say that it is or isn't. It is very much your decision. 

But let me be frank, I've spoken about this on the podcast many times before. If the average HMO probably has in the region of about hundred thousand quid's worth of equity tied up in it, it's not necessarily equity that you started with. You might have recycled loads of money through it, but ultimately 400,000 pound HMO with a 75 % loan to value mortgage, there's a hundred thousand pounds worth of equity in there. I know lots of people who are making less than a thousand pound on a deal like that. 

So if you step back and ask yourself the 5,000 pounds that I'm getting from the half a million that I've got tied up in five HMOs, is that really what I want? Is that the right thing for me? Is that the best use of my capital? Am I getting the best return on that cash that I think I can? I for a long time said, quite openly on the podcast that building businesses, trading businesses is a far better way to generate cash flow. It's very, very difficult to generate cash flow from assets because it's so incredibly capital intensive. It can be easier to do that from a business. You can, with the right business, invest less capital and get a better return. And it can be easier to dial that cash flow up and down. It's very difficult to do that with assets. Yes, they behave differently. It's not possible to compare apples and apples here. These are very different things, but

Andy Graham (09:28.26)

This may be something that you're thinking about. Maybe HMOs just haven't turned out to be what you thought they were. So look, if the cash flow no longer stacks up, you either do something about it and make that cash flow stack up. But if you can't, one of the options on the table is to sell that asset. Number three, your capital might be trapped and you can't refinance. Perhaps you've left more money in the deal than you anticipated and you simply cannot get it out. Maybe you can't get it out because the valuation isn't there at the back end. Maybe the market has just softened a little bit. Maybe stress testing, probably more of an issue on buy to let than it is HMOs. But whatever it is, maybe it's just not possible to get the money out of the deal that you thought you could. And selling is potentially the only way to release that and do more productive things. You just need to deleverage. That is a really simple scenario that happens to a lot of people. Now, when we're investing in deals, when we're thinking about buying something potentially boring, wanting to do it, we should always be thinking about how we're going to repay and redeem loans that we've taken. 

So if you've got private finance on that. If there is a scenario where we might not be able to repay those loans because we're not able to recycle cash out of the deal because perhaps the valuation doesn't stack up, we need to have a contingency in mind for that. Now that contingency might be have a chat with your investor, keep some of that investor cash in the deal, pay them over a longer period of time if they're happy with that. But it might be that they don't want to do that. It might be that you're just not prepared for several years to take all of the profits from your deal to pay an investor back. 

Maybe it's just time to crystallise whatever gain you have made and walk away. So don't feel like just because you've done the deal, you have to stay in the deal. I've seen a lot of people make that mistake. Sometimes the obvious solution is just sell it. Look, you've made some money. You've not made enough to pay everyone back. It's not the worst deal in the world, but it's probably not the best deal in the world. Would it be worth thinking about crystallising this and simply moving on to the next deal? 

Number four. The fourth reason you might seriously consider selling is because you've created a premium asset and you want to realise the capital gain. So increasingly so in recent years, I have seen people come into the market and where we've seen people typically creating capital and big chunky lumps of money through flipping normal residential property, I'm seeing it be done in the HMO space. And there's no surprise because a lot of people...

Andy Graham (11:45.958)

have a really strong appetite to buy a going concern. There's a lot of people with a lot of money that don't want to go through the hassle and put all of the work in to find the deal, to find the contractor, to go through planning, to deliver the project, to then get tenants in. Actually, the idea of just buying something that's up and running and investing a certain amount of money for a yield is very, very, very attractive. And it's still asset backed, it's real estate in the UK. And if it's a good, well-located HMO that's been done to a good spec, that's an incredibly attractive opportunity.

There are not that many of them around. Trust me, you only need to look across Rightmove and Zoopla to see how few of those actually exist. There are a lot of people that are very much in the market for that sort of thing. So it's worth thinking about that prospect. If you happen to produce a really valuable asset that's created lots of capital, maybe your original plan was to hold it for cash flow, but sometimes as an investor, it's worth thinking about taking that step back to take two steps forward. So let me explain what I mean.

If you potentially created so much capital in a deal that you could sell that and maybe recycle it into two better assets, but it might all take a year or 18 months to do, that is not necessarily a bad decision. Yes, you're walking away from a really good asset, potentially some really good cash flow, but you do have to think as an investor in a business model that's very capital intensive, how you are going to continue to multiply your wealth. It is really difficult to recycle all of your capital from every single deal.

On the odd occasion where you do exceptionally well, perhaps someone comes along and is prepared to pay a lot of money for something you've created. That might be the time to take some money off the table, recycle it back into your strategy and essentially double down on your efforts. You have to take everything into consideration. The frictional costs can obviously be eye watering, stamp duty, legal costs. If there's a mortgage, early redemption charges, whatever it might be, you have to take everything into consideration and really get honest about what it's going to net you. But if you've got a lot of capital trapped in a deal and it's a premium asset and you want to realize a capital gain, then that is the sort of scenario that can actually help you on this journey. 

Number five, it's no secret that HMOs can become very maintenance heavy and they can become very inefficient. Endless repairs, awkward layouts, outdated systems in HMOs. These are the sorts of properties that tend to have these sorts of issues. Large HMOs as well for a long time.

Andy Graham (14:10.261)

Very publicly spoken about the challenges that larger HMOs bring, four and five bed HMOs, they're a piece of cake. Six bed for me, it's the real sweet spot. The best cashflow and not too much management, but yes, more management than fours and fives. Sevens and eights above, lots of management. And sometimes that can increase exponentially. And there are lots of reasons for this, but the main reason is because when you've got a lot of people living in a property, there is just quite simply less accountability.

More people pointing the fingers at other people and that cost ultimately falls back on you as the landlord. So if for whatever reason you find yourself in a position where your maintenance bills become really heavy, the property is inefficient and it may not be just stuff internally, it might be roof issues, drain issues, structural things creeping in, maybe a house needs repointing or re-rendering, like those really expensive things. I mean, look, look at the EPC things on the horizon at the minute. There are a lot of landlords right now staring down the barrel of a very expensive bullet and thinking, do I really want to invest all the money that it's going to take to get this asset to an EPC of a C? Maybe now is just the time to sell it. Those are the sorts of situations where maybe it does make more sense to get out because you'll have to hold on to the asset for a lot longer to recoup any investment or reinvestment in the asset that you might have to make to get it to the right standard or keep it at the right standard. 

Number six, perhaps the tenant profile has shifted. Perhaps the location preference has changed. If you find that you're constantly fighting voids or tenant issues because the market has moved around you, that is a really good indication to either do something different with the property or sell that asset and just move on to something altogether. Let somebody else deal with that problem to be quite frank. This does happen. I've seen it happen a lot. I've seen it happen more so with people who are a bit hands off in their portfolio, outsourcing to people that are finding deals and then refurbishing for them particularly stuff in the Northwest and the Northeast, where investors don't really have that true understanding of the on the ground logistics, what the tenants want and what's going on locally. That's where these sorts of issues can creep in quite quickly. And if it's a case of simply lowering the rents to a of a level that makes the deal really uneconomic or it's potentially

Andy Graham (16:30.335)

bringing in a different tenant demographic that completely changes your strategy, that's when you would seriously consider just selling the asset, doing something different with your capital. It's easy to make mistakes, it really is, but it's even easier to hold on to mistakes. Sometimes it is just better to cut your losses. I gave the example earlier of the student market and the changing demographic there. We see that all over for many different reasons, but it's something to be really aware of. And don't hold on just because you put the time and the effort and the blood and the sweat and the tears into creating an asset. 

Sometimes you've just got to cut your losses and move on. And finally, number seven, the other big reason that I think, and this is the one that will I think affect most people, will be the decisive factor for most of us as investors. You might be thinking about consolidating, re-prioritizing or restructuring. Maybe you want to focus on bigger projects. I sold 12 HMOs many years ago because I wanted to move on to do other things. I wanted to build and expand my business. I wanted to get more business experience. I wanted to build a business that I could exit from. That deal that I did enabled that process and then did ultimately go on build a business and sell it. As I've talked about on the podcast, it frees up capital and for me did do and that capital could be recycled and then reinvested into other deals, potentially larger deals. 

And for me, that was all about consolidation exercise. I wanted to acquire more assets, but I wanted them in a few buildings. So now I have lots and lots of flats alongside my HMOs. Those flats, those blocks, if you like, they require a lot less than the equivalent number. You can imagine owning a hundred HMOs, each one with it in a slightly different location. That's a very difficult business to run. And I know that from running the agency, how challenging it can be managing hundreds of HMOs being the landlord or having the controlling stake in that many HMOs. 

Consolidating is a really important part of portfolio growth. It depends on the scale of your goals and your objective and your ambitions, but consolidating is definitely something that you may want to think about. Restructuring your company. From a tax perspective, maybe you're thinking about legacy and passing your wealth on, on your assets onto future generations. You restructuring for all sorts of reasons there might be something you need to do.

Andy Graham (18:48.991)

I mean, it might be because you get divorced. These things are very much plausible scenarios and I'm highlighting them because what we're to move on to discuss is why it's so important to be prepared for these sorts of things. Quite simply reprioritizing as well. Just recognizing that you want to do something slightly different with your time and with your money. There's nothing wrong with that at all. I am not specifically and solely invested in HMOs. I don't want to be. I really enjoy the other stuff that I do. I find more opportunities elsewhere and other types of deals.

Yes, my HMOs are an incredibly valuable part of my portfolio. They are a certain predictability and reliability. I can do a lot of really good stuff because of that, but it's not the be all and end all for me. It's not the absolute of everything I want to achieve. And it shouldn't necessarily be the case for you as well. So use HMOs as a stepping stone. Don't feel like you have to, you know, be anchored down by them though. So there we go. The seven reasons, they're kind of really obvious sort of reasons why you might consider selling. 

First of all, you just simply want to do other things with your money now. Secondly, the cash flow may no longer stack. Thirdly, your capital is trapped and you can't refinance. Number four, you've created a premium asset. There's a lot of capital in there. You've made a really good gain and you want to realise that to take a couple of steps forwards. Number five, maybe your asset has become maintenance heavy and inefficient and it requires a lot of reinvestment to get it to the level that you need.

Number six, maybe the area and the tenant profile around you has shifted. Maybe things have just changed structurally. And number seven, maybe it's time to consolidate, to reprioritise or to restructure your business. So as I said earlier in today's episode, this isn't about trying to convince you to sell. It's really just about highlighting the many scenarios where you might want to sell and where it would really make sense and almost giving yourself permission to say, yeah, okay, it wasn't necessarily the original plan, but it does make sense now. The bit that most investors overlook is that they don't plan to sell. They don't build to sell. And this is a really fundamental part of building any business in my opinion, but at least property businesses. Whether you intend to sell or not, you should always be building it like you might do a well managed, clean business, good documentation, good systems and processes and compliance, a clear record of your tenancies, fire safety, income, expenditure, all clearly organised, all in a way that you're able to lay it out and

Andy Graham (21:15.809)

hand it over to someone so that they can very easily see under the bonnet of your business or your asset. That to me is so incredibly important. And it's not hard to do that. This is stuff that you should be doing anyway. But making sure it's all super clear, making sure it's demonstrable. The value of having clear maintenance records is so important because what a lot of people are obviously worried about when they come and buy HMOs are the very reasons we've discussed them, maybe the asset has become really maintenance heavy. 

Well, actually, if that's not why you're selling and you can demonstrate that actually, you don't and haven't really spent much on maintenance at all over the last six or seven years on this asset, that's a fantastic position to be in. You are going to get top whack for your deal. It helps keep options open when it comes to refinancing, joint venturing, exiting, but having all of that stuff, well managed, clean, documented systems and processes is so incredibly important. 

So what I want you to do after today's episode is ask yourself, are you keeping those records? Do you have good systems and processes? If you had to sell tomorrow, if something happened, would you be in a good position and would you be able to get absolute top whack for that asset? If not, do something about it today and keep on top of that. It's so important. It's such a valuable part of the process. And there's so much intellectual property that you can sell in doing this.

One day you might not just sell the asset, you might sell the wrapper that that asset or assets are in. You might sell the SPV. That is such an attractive sale to somebody. Right now I have so many friends looking to acquire large portfolios. There's so much money in the system at the minute looking for the sorts of things that we are developing that you can get an absolute premium for it. But you've got to be able to demonstrate it. And if you can't, you're not going to get that premium.

If you can't even worse, you might not be able to sell that asset. You might actually find it difficult to dispose of that asset because you don't have the proper record. So make sure that that is never the case. So look, if you're weighing things up, maybe you're tired, maybe you're curious, maybe you're just wondering if your capital could work harder. Maybe you're pondering what the future might hold for you. I hope that today's episode has just given you the permission to at least think about the idea of selling in a more constructive way.

Andy Graham (23:27.497)

It's certainly not giving up. It's certainly not a backwards step. It doesn't mean that you're done with HMOs if you are thinking about this or there are one or two assets in your portfolio where you think that this might make sense. It just means that you're thinking like a business owner. 

So if today's episode has struck a chord, if you've got any questions about anything that I've discussed in today's episode, come on over to the HMO community and let's discuss it. Ask the questions, find the guidance and support that you need from our community. There are over 10,000 of us now, myself included. Always on hand to just give you that helping hand, just give you that support that you might need. These are difficult conversations to have. These are difficult decisions to make. And sometimes if you're doing it independently, it can be really difficult to see the wood for the trees. That is exactly why we're here and why the community is there. 

Of course, if you do want to take things to another level, if you do want to professionalise your business, if you need help with the systems, the processes, making sure that your compliance is all right, making sure that you're managing your HMOs and maximising the results from your assets and doing it all in the right way. Head over to thehmoroadmap.co.uk everything you need to do all of this is there and waiting for you. Every tool and resource you need, every video lesson, every piece of advice that you need to get the very most out of your business and your assets is waiting for you inside the hmo roadmap. So go and check it out. 

That's it for today's episode guys. Thank you for tuning in. I hope you found it useful. Hope you found it valuable. I hope it's at the very least have been a bit of food for thought. 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.