How To Prepare For And Maximise a HMO Valuation

In today’s episode, we’re diving into one of the most important and most misunderstood parts of HMO investing: valuations and revaluations.

Now, if you’re buying HMOs, adding value, and relying on pulling your money back out to go again, then your valuation at the end of a deal is absolutely critical. It’s what determines how much capital you’ve got to reinvest and ultimately how quickly you can scale.

But here’s the problem… I see so many investors doing good deals, adding genuine value, and still not getting the valuation they expected. And equally, I see people expecting results that just aren’t supported by the work they’ve done or the data in the market.

In this episode, I break down exactly what drives HMO valuations, how lenders and valuers actually look at your property, and most importantly, what you can do to put yourself in the best possible position to get the result you need.

🎯 What You’ll Learn

• The four key ways to create value in a HMO
• How commercial valuations really work
• How to speak to valuers, gather data, and set realistic expectations
• What to include in a strong valuation pack 
• What to do if your valuation comes in lower than expected

If you’re serious about scaling your portfolio and recycling your capital effectively, this episode will help you close the gap between the value you create and the valuation you actually achieve.

💻 Resources & Mentions

• Join my Accelerator Programme: If you’d like my direct input on your current or next project, you can watch this video or book a complimentary strategy call with me here.
• The HMO Roadmap: Feeling overwhelmed? Access 400+ tools, templates, and lessons to help you start, scale, and systemise your HMO business - all in one place. Join here.
• The HMO Community: Got questions or need support? Come and connect with 10,000+ investors inside our Free Facebook Group here.
• Social: Follow me on Instagram for daily HMO tips, advice, and behind-the-scenes updates here.

Transcript

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Andy Graham (00:02.67)

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

Andy Graham (00:40.846)

Maximizing the revaluation of a deal is one of the most essential elements of investing in property. But when it comes to HMOs, it is also one of the most misunderstood. Today's episode is about helping you prepare for them properly and giving you the best possible chance of achieving the numbers that you need. If you're buying HMOs and you're adding value, but you're relying on that ability to recycle it back out to do the next deal, then today's episode is definitely one you want to stick around for. Let's get into it.

Andy Graham (01:10.575)

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 (02:20.848)

OK, welcome back. So today we are talking about valuations. Of course, one of the most important aspects of investing in property, certainly when it comes to HMOs. Now, if you're refinancing and trying to pull your money back out of deals, your revaluation is ultimately what determines how much capital you have in hand to go again and how much capital you end up stuck within the deal. Now, one thing I see all the time is investors doing good deals, adding genuine value, but not being able to get the valuation that they expected at the end of it.

And equally, I see people who haven't really done what's necessary and they're still disappointed at the end when the valuation comes in, but it's low. In reality, they probably shouldn't be surprised by that result. So there is a gap and this is difficult, especially if you're more inexperienced and it is very much an art and not a science. And what I'm not saying, and I guess this is the caveat to today's episode, it's not going to be a case of following my advice in today's episode and you'll get the valuation that you want every single time. 

However, If you do follow my advice, you will enhance your chances of getting the valuation that you want. There are lots of moving parts to this and a lot of it is subjective, but you can close the gap and you can increase your chances. And a lot of what we do in this game is all about doing that, mitigating risk and putting ourselves in the best possible position. And today I'm going to help you do exactly that. So we're going to do a few things. 

First and foremost, I'm going to help give you a much clearer understanding of what actually drives valuations when it comes to HMOs. And then more importantly, I'm going to help you understand what you can actually do to influence them and then maximize the outcome. So we're going to talk through how to actually create value in deals. We're going to talk about how valuers and lenders look at valuations. We're going to talk about what you can do to put yourself in the best possible position before the valuation. And we are going to talk about what to do if things don't go the way that you want. 

So, we're going to start today by discussing the idea of creating value. Most of us are familiar with this. It's what many of us have in mind when we're buying a property. We're going to do something to it. And this is one of the things I love about real estate. It is a very simple arbitrage model. We buy something for X, we do something to it, and it's worth Y at the end. Really, really, really simple. But breaking it down, what can we actually do to be creating that value? So there are a few things.

Andy Graham (04:44.913)

that I think everybody should be focusing on. When you're looking at any deal, these really are the pillars. This is the foundation of the ability to create value, to add value to an asset. And it's very, very predictable. If you do this, the outcome relative to the work that you do is very predictable. It's a very objective exercise. So the easiest way to do this without any shadow of a doubt is quite simply to add space. 

So we're talking about extensions, we're talking about garage conversions, we're talking about loft conversions where we're taking a space that is either underutilized either because it's a patio or because it's just used as storage and it's not being used for internal habitable use. And we're returning it into that. We're going to spend some money. That's the arbitrage model. And we're going to force value through that process. Now, if we take a garage or loft space, for example, if you look at the property that you've bought, you can work out exactly what you've paid on a pound per square foot basis. 

And the fact that that loft isn't being used as a habitable space or a bedroom will mean that you haven't paid a premium for that space in the loft. But if you do some work to it and let's say you spend a hundred pound per square foot, well, there's a very good chance that that could then be worth two, three or four hundred pound a square foot. Now I've really simplified the maths here, but that is the fundamental idea behind adding value through the creation of space. 

So you can do this, like I said, with garages, with lofts, with rear extensions. That is the low hanging fruit. And I'm always looking and always encouraging my mentees to be looking for those sorts of opportunities. It's just a very predictable way of adding value to an asset. And it's very, very objective. So adding space value is first and foremost what we should be focusing on. Secondly, we can also add spec value. So keeping this really simple, let's just say that you've bought an existing HMO. So go in concern, it's a six bed HMO. You can add value to that asset simply by improving the spec. So going in and upgrading the kitchen and the bathrooms and the flooring and redecorating. All of that stuff can add genuine value. But the ability to do that is much more limited than your ability when you're adding space. Of course, the risk is much lower.

Andy Graham (07:11.008)

And you're not able to arbitrage as much from it. You're spending a little bit on it. Let's say you're spending £25, £50 a square foot to do that. It's going to be pretty hard to make that asset worth £100 a square foot more after all that is said and done. You might eke a little bit more out of it. You might add a little bit more value but it's going to be quite limited. 

Now again, it is quite predictable, especially if you're careful and you're conscious about what you spend on and the materials that you use. There is definitely a sweet spot, an intersection between the amount of money that you spend and the value that you'll get back on it. You can't just go in and gold plate the walls and the, all the, I am hungry and expect that you'll see that back in the value just because you spent more money. There is absolutely a depreciating return once you spend over a certain amount on any particular property.

But if you're sensible about it, if you're intelligent about what you spend money on and where you spend it, you absolutely can add some genuine spec value. So we've got space value, we've got spec value. You can, of course, also then add rental value. So whether we're buying, let's say, a normal dwelling house, family home, and we're turning it into a HMO, we're of course going to be forcing the rental value of that up. Perhaps we're buying an existing HMO. Let's say we're buying a five bed, but we're going to reconfigure it.

And we're going to turn it into a six bed. Well, you're adding a lot of rental value. So even though you're not changing the use, even though you're not necessarily adding any space to it, you are definitely adding some rental value and that can push your value up. That will definitely help create some value in the asset. Layout and optimization and room mix. So this is another way of adding value, but it's quite closely related to the ability to add rental value. If you want to add a room, then almost certainly going to have to re-divide the floor plan, do something and try and optimize the space. 

But it's not just about creating extra rooms. You can still have a six bed and make it work much better. So you might have a HMO or a property with some very big rooms and some very small rooms. And that's not going to help. You might want to rebalance and redistribute that space. You might want to open up the kitchen into the living room and create that open plan feeling, give it that kind of airiness, let that light come through. There's lots of different ways of

Andy Graham (09:29.998)

maximizing the value through quite simple floor plan optimization exercises. So those are the four key ideas behind creating value. First and foremost, adding space value. Secondly, adding specification value. Thirdly, adding rental value. And then finally adding value through the optimization and room mix. Really, really, really specific to HMOs. So you've got to nail that. And this sort of stuff you have to be able to see at the outset from a deal.

You need to really know as much about this and your intentions before you actually go ahead and buy the property. Otherwise, how can you actually try and establish how much money there might be to make in it? Good investors really understand, recognize and identify this stuff from the outset. And they're doing lots of work to try and bottom out exactly what they can do, exactly what that floor plan can look like, exactly how many rooms, exactly how much they're likely to spend converting the loft.

Can it be done doing the extension, all of that stuff. So when you're looking at a deal, have all of this in mind, ask yourself, can I add space? Can I improve the spec? Can I add rental value and can I improve or optimize the existing floor plan? 

Now moving on, understanding how HMOs are valued is obviously a really important part of the valuation and revaluation process, but it is inherently difficult when it comes to HMOs because unlike buy to lets, they are quite a specialist type of asset class. Fairly uniquely, because of the very high rental premium that we can get, they can be classified as commercial assets and viewed commercially. So when specialist lenders are looking to lend, they will take that into consideration. And essentially what they're doing is they're giving you an opinion and evaluation on more than just the brick and mortar value of that asset. They're actually lending against the commercial element of the asset a little bit imagine because it's like a little mini business they're lending against that performance ability. 

Now not every lender in the market is interested in doing this. There are a few lenders that do you'll I'm sure be familiar with some of them but it's your likes of Shorebrook Bank and Hampshire Trust and Kent and Paragon and you know there are quite a few but they are specialist lenders and naturally because it is a specialist field and they're doing something that is a slightly higher risk.

Andy Graham (11:56.021)

The interest rates that we typically pay for these sorts of mortgage products and the introductory fees, they tend to be more. So it costs more to get onto these sorts of products. But if you want to access those commercial valuations, then that is just part of the process. So how do we understand, how do we know how HMOs are valued? Well look, I'm not going to go into the process of understanding commercial valuations in today's episode. What I really want to do is just point out how important this is.

If you are not sure how to do this and what is being considered by your valuer and by a lender when it comes to this, you need to go and do some work. There are some really incredible videos inside the HMO roadmap that Ellie, our broker, has done for us. So if you're a member of the HMO roadmap, you can go and watch them, but make sure you have that real intricate understanding of what is involved. Fundamentally, we are taking the gross rental income. There are some calculations we can do when it comes to the operational expenditure, the OPEX that's deducted from the gross rental income and then the remainder is capitalised and every location around the country has its going rate, its yield if you like and your asset will be capitalised against that and it'll give you a valuation. 

Now it is not an exact science, there are different interpretations, there are different methodologies, there are different percentages and proportions that some valuers and lenders will give things as opposed to others and that will all influence your deal. But you can get ahead of this stuff before you actually go through the process. You can try and better understand it. It can be much more predictable than a lot of people think. Not entirely predictable, but it definitely can be much more predictable. So why and when are these different methods applied? Well, it really does boil down to the value and to the lender. There are actually

Even according to Rick's, there are different ways of establishing the commercial value of an asset. So it isn't even as simple as there is one way and everyone should do it. It's just not the case. There are different ways and different lenders. Like I said, their objectives from one lender to another, they are also slightly different. And this can make it tricky for us because if we're not going to the same lender and the same valuer every single time, then there's a good chance that we'll get a slightly different opinion on the valuation of an asset. Even though if we gave.

Andy Graham (14:15.171)

for example, a different value and a different lender, the same asset, we might just get a different opinion on it. And it's not necessarily that either of them are wrong. It's just how they do it. Okay. One might not suit us. One might suit us more than the other, but that is the reality. So we really want to be trying to understand this and the valuer and the lender as much as we possibly can in advance. That is not always easiest thing. And we're going to come onto that in a moment. 

Now, the reason most landlords and investors misunderstand this is because they think it's as simple as taking the gross rent and multiplying it by 10 or 12 and that will give you the commercial valuation. That is an oversimplified way of looking at commercial valuations. That is not it. There is even nuance to do with the residual value, the actual brick and mortar value of the asset. So just because it might have a really strong gross rental income, if it's a six bed terraced house, there is still going to be some consideration for the fact that next door is like say a three bed terraced house and it's worth whatever it's worth. 

You can't just kind of make this stuff up and expect it to be entirely commercially led. As assets get bigger and bigger and bigger and you have more and more rooms and they are less and less like residential properties, you do gravitate away from brick and mortar values further and further. But the closer you are to that, the more closely your valuation is likely to be tethered and anchored to that residential value as well. 

So, just bear that in mind. But like I said, not all income is treated equally by lenders and valuers and banks and specialist lenders. They can push higher valuations, but you've got to expect that the interest rates will be higher. So that is the second key thing you really need to be aware of. Like I said, go to the HMO roadmap, watch the master classes we've got on understanding commercial valuations. You can be an expert in 40 minutes on this subject and it could be worth tens and tens and tens and tens of thousands of pounds for you. So it's a no brainer. 

Now, setting the valuation strategy. I think this is very important and I think a lot of people do overlook this. Probably more than any other element we're talking about in today's episode. So this is a pre-purchase exercise. It starts before you even buy the property. When you're appraising your deal, you should be reverse engineering that end value. So when we look at something, let's say we've seen an on right move.

Andy Graham (16:37.754)

It looks great. We put all our numbers into the deal stacker and it spits out some performance metrics. Ultimately, there should be evaluation with that, but inevitably then there is a process of refinement where we go back through the appraisal and we tweak it and we play with it and we look at the relationships between the different elements. And of course there are factors that we can change and factors that we can't. So ultimately the yield is driven by the amount of money that we spend on it and the amount of rental income that we get.

But we get to decide how much we spend in it. For example, the development or how much we pay for it. We can't really determine what the stamp duty is. It's related to the purchase price. So there are some elements that we can change and some elements that we can't. And our job as an investor is to get that deal and kind of shape it around ultimately what we want. But we've got to put some pretty good assumptions in there, haven't we? We've got to think about what the refurbishment cost is. Well, that's surely got to be dependent on our ideas behind, for example, adding space or adding spec value or optimizing existing floor plans and all of that stuff. 

So it's really, really, really critical that we are setting that valuation strategy very, very early on. We're building it into our appraisal at day one and then reverse engineering the model based on where we need to be. Now you also have to set very realistic expectations from day one. This isn't something that you can just expect to kind of come out in the wash and it be really good because you're going to just do a good job with this property. That is the worst possible way you could get into a deal. You have to be really, really, really, really clued into what that valuation is going to be. And you have to give yourself some sort of a contingency. Now you should be being realistic about this. You should never be buying something on an optimistic view of what that valuation might be. 

The data has to be there to support it and we're going to come on to some of this shortly. But if it's not, you have to bring it down. If the data isn't there and you can't support it, you're being optimistic and you have to rein it in a little bit. If you don't do that, you are very, very, very likely to not only be disappointed at the end, but you could put yourself in a very, very difficult position where you might owe too much money on the deal. You might end up with some investor funds locked in or bridge funding locked into your deal. That's pretty disastrous.

Andy Graham (19:00.422)

And we've got to make sure that that never happens. So we've got to set a realistic valuation expectation from day one, which means we have to be really, really, really good at appraising our projects. Now I can hear all of our listeners saying, well, how do we know? How do we get good at that? Well, there are a few tips I'm going to give you now. And a lot of people do overlook this stuff. How many people listening right now have approached a valuer or even had a call with a value before they've bought an asset before they've actually completed. 

Very few, I suspect. Most people just wait. They think it's just part of the process. You get your evaluation done at the end. Well, actually, you could be really savvy about this stuff. You can make some calls about a project that you're interested in to some valuers before you're even going to buy it. Not every valuer is going to be happy to give you some advice or give you their thoughts, but in my experience, most of them are okay to do it. If I've seen a project and I'm genuinely a little bit unsure about what it could be worth, let's say I'm buying a project in an area that I've not done something before. 

So I've got experience doing it elsewhere, but I'm not totally sure here. Well, I might kind of look around at local surveyors and local valuers. I might even find out who's on the panel for some of the specialist lenders that I might end up going to. And I might just give one of those valuers a call. It might be a firm with a number of valuers. I might just ask the question, look, I'm thinking about buying a property. This is what I'm thinking about doing with it.

I'm a little bit unsure about what it might be worth at the end. Is anyone in your team kind of experienced or do they do these sorts of valuations for lenders? I'd be really, really grateful if I could just get a couple of minutes to maybe just understand how you would typically approach valuing one of these sorts of assets. And boom, if that door opens, you've got a really, really, really great insight into how they are going to look at it.

They're not going to give you the valuation of it. They haven't seen the property. They've not got any figures or data. They've not got anything else we're talking about in today's episode. But just understanding the methodology, just understanding what their opinion of the going yield is typically in that location. That's going to be like gold dust for you. And they're not going to be conflicted because you're not asking them to look at your property or a particular deal. It's very much off the record and they can say no.

Andy Graham (21:15.325)

You're not pinning them down. It's not a written record, but it can be really helpful. It's just like a little bit of information, a little tip bit, and you can take that, but actually it can be incredibly valuable to you. And you know, if you get off the phone with someone who doesn't sound positive at all and not saying what you want, either you need to rethink what you're buying or you just need to rethink who you might go to for your lending and then maybe which value you might be able to choose off the panel. So that's a really, really, really good tip.

Couple of other things that you can do to try and improve your ability to appraise stuff and kind of reverse engineer those figures before you start, go and get some data from the market. So do you know any landlords locally who have got similar assets, who've had them refinanced recently? Is there anything there that's comparable? Is it a six bet just around the corner? Is it something that they've just refurbished? Have they gone to the same bank that you think you'll probably go to?

It's amazing if you just start talking and this is why network is so powerful. How much information our investor community is happy to share. I know lots of people and this is something I'll regularly advise my clients to do, but they know people through their networks and they'll be happy to share a little bit of information. Yeah, I actually got property around the corner from this one you're thinking about buying, done not too long ago and the valuer said this. In fact, here you go, have a look at the valuation report. And you know, I've seen so many of these and that can be really useful because

If you get that template, property is not what you're buying, but it's a template. And if you can see the methodology there and you can see the type of property and the size of the property and the work that was done to the property and the performance of the property and the number of rooms and the rental income, that can be a really good guide. And even if it's not exactly the same as yours, it could be a really, really, really good and useful guide. So that's another very important piece of information that I recommend everybody just tries to do. Now, I appreciate you might not know anybody, but what I would say is

You need to do some more work. That is a risk for you. You should have people in your network. Try and build that network. Try and find those people who could help you with this sort of advice and anecdotal information and experience because that will help reduce your risk and steer your decisions. So it's a really useful thing to do. Lenders. Like I said, there's lots of different lenders and you need to be thinking about this from the outset, but you need to be using the right broker. Of course, my recommendation is

Andy Graham (23:39.037)

Speak to Ellie. She's our partner at the HMO roadmap, but Ellie has these really special relationships with these specialist lenders. And because they all operate in a little bit of a different way, because all of us investors are doing it from a slightly different position, Ellie understands that nuance and she's great at fitting the right pieces of the puzzle together, putting the right investor in front of the right lender. And that's really, really important. If you don't do that and someone's not guiding you, you can absolutely end up going to the wrong lender and they can give you the wrong sort of results and that's just going to be a complete waste of your time and you're probably going to spend lots and lots of money doing it before you realize. So that conversation with your broker, that should be done really early in the process as well. And I'd recommend that you do do that. 

Okay. So setting the valuation strategy. Let me just recap because this is a big one. First and foremost, you need to be able to reverse engineer the end valuation at the outset. So before you even buy the deal.

That means you've got to be setting realistic valuation expectations from day one, but you need to be as accurate as you possibly can. You have to be realistic and not ambitious. choosing or understanding at least the choice of lenders and using the right broker to help you do that. Then maybe even sort of having a conversation with a valuer that might be able to give you a bit of a steer. Are you in the right ballpark? And then fundamentally just understanding the math behind commercial valuation methodology.

And accepting the fact that it is not an exact science and there has to be some scope for it to be a little up or a little down on where you ultimately would like to be. Now let's assume we've done all of that. You've planned everything really well. You've done a fantastic refurb on your HMO. You've got it filled. Everything's looking good and it's time to get it revalued. What are we actually doing at that point? 

Well, we can build a bit of an evidence pack or a portfolio if you like, just something to help explain the position, something useful to give to your valuer. A lot of people will call this a valuation pack, but call it what you like. It's a combination of some comparable evidence, some real world valuation data from other landlords and investors. It's a valuation pack that includes things like the property details and spec, the schedule of works and the breakdown of costs, what you actually spent, what you actually did. It's all the compliance docs, your license, your safety stuff, things that...

Andy Graham (26:00.743)

Make the valuer know that you're serious. You know what you're doing. You've done a really good job. Doesn't leave any questions unanswered. It's the rental schedule. It's the tenancies that you've already got signed up or agreed. It's the OPEX. It's the operational expenditure. What are you actually spending to run it? What are your bills actually costing or what are you predicting or estimating them to be based on maybe other data that you've got or your other properties? It's comparable evidence. Actually not just you saying that.

You've seen properties worth this, or you know somebody who's got a property worth that is it's fundamental data. It's extracting information from the market where you can. Now that can be hard to find sometimes if you want to find five, six, seven bed HMOs. There's not lots of those that have sold on the open marketplace, probably local to your property. So you might struggle with that, but it's putting as much of this information as you can together, making it as helpful as possible to the valuer.

Just helping sort of explain the project to them, what you've done with it and how you got to the valuation expectation that you have. But just a word of warning, if you try and force this down evaluators throw, if you try and tell them how to do their job, if you put information in there that is, let's say you've elaborated on that they are going to see through it straight away and it's not going to be helpful. This is meant to be a useful document, a helpful bit of a time saver, bit of a sort of a

You know, just helping them get inside your brain, but ultimately you have to understand and expect that they have a job to do. They have a responsibility to do the job themselves. And ultimately, if that information is not there for them to go and ratify, it's not going to work. So it's just a professional pack. It looks good. It sounds good. It's going to give the right impression. But if that data actually isn't out there, it's not going to be that helpful.

And now it doesn't mean you're not going to get the valuation. They might still have that same opinion as you, but you need to understand that the scope, the risk is going to be much greater. If you haven't got the information about how much you spent on the project, well, how do they know what you've done to it? How do they know whether or not they can really justify the uplift in value? If you haven't got the rooms rented yet, how can they justify the expectations or assumptions?

Andy Graham (28:22.757)

If you can show some comparable dates or some other stuff in the market, if you can get, here's a nice little tip. If you can get a statement or something from other agents, that can be quite useful. I do that regularly, especially with my multi-unit freehold blocks of flats. There's lots of stuff that you can do and you can just try and put as much information together as possible, but you're not forcing it down the value as throw. It's just a helpful pack and that's it. My recommendation would be to spend a bit of time to make it look good, present it in the right way.

Put it all together, kind of staple it together or put it in a nice little binder. It shouldn't be too long. Just something that, you know, is pleasing, something that just gives a little bit of joy to their day and just makes their job potentially a little bit easier. But it's a really useful tool in my experience. It won't necessarily convince someone that your property is worth more if it's not actually worth more. Like I said, it's not a magic trick, but it's just a little thing to have in your toolkit.

Now I want to talk to you about timing a market context. This is important. And especially when I'm recording this episode right now, of course, there's a lot of stuff going on in the Middle East and there's more uncertainty back in the market and swap rates are high. The last few years, sort of five years have continued to remind us that timing and context in the market is very, very important when it comes to valuations. A lot of valuation methodology is subjective opinion. 

It is sentiment and you'll see from time to time when there are events going on around the country from a political or financial perspective or elsewhere in the world. RICS, the Royal Institute of Chartered Surveyors, they will often caveat valuations with this sort of information. COVID was a great example and they will quite literally recommend their valuers be cautious. So what you need to be mindful of is that if there are things going on that are creating uncertainties. They are making people anxious and nervous. If property values and data is down and it's soft, the sentiment isn't strong. There's a very good chance that you will see that in your valuation as well. Just because your property looks good and you've got your rooms filled doesn't mean that you are immune to those sorts of opinions. So, and I guess this is what I'm saying. Sometimes you need to think about when you get your asset

Andy Graham (30:51.183)

revalued. Sometimes you might be best to wait a little bit. Now I appreciate you might not be able to afford to wait and I get that. But if you can, it might be worth considering because if things do settle down a little bit and if sentiment does come back three, four months later, you might get the valuation you want. Whereas, perhaps now you might not get the valuation that you want. So it is these external events. It can also be stuff on a more local level, especially in areas where maybe there are reports of oversaturation. 

Maybe there are issues within the student market. There are in some cities in the country challenges with the purpose-built student accommodation sector, and that is quite headline grabbing. And that definitely trickles through down to the valuers and kind of ricks is in the newspapers. So just be mindful that this sort of stuff can have an impact on your valuation. And sometimes you might be best to wait if you can afford to do that.

Now finally, execution on valuation day. There are a few things that you can actually do on the day when the value is going to arrive just to kind of help kind of put that cherry on top. So of course, staging and presentation like actually showing your property off. This kind of depends on whether or not you've got tenants in the property. But generally speaking, what I like to do is line my valuation up so that as I finish the refurb and I've got it cleaned and furnished.

I get it staged and quite literally the next day I've got the valuation lined up to happen. It's looking the best it will ever look at that point. It's never going to look better. Soon as my tenants move in, that shine is going to kind of wear off very, very quickly. Now it's not to say that you won't get the same valuation once your tenants have moved in or if you don't stage and present it well, but what a shame if you're doing all of this work and you're putting all this time and effort into everything that we're talking about today.

And you don't just spend that day staging it and presenting the property in the right way. Now, at some point, I assume you are going to do this anyway, because you need to get your photographs, your evergreen photographs that you can use for the next five to 10 years. Every time you need to fill rooms when they become vacant. So it makes sense to do this then, but I just think it's really impressive. It looks good. The property is never ever going to look better. So making it look exceptional and giving the valuer of the opportunity to see it in all of its glory. I just think that that's.

Andy Graham (33:14.681)

really, really important. And I would recommend that you do that. I'd also recommend that you meet them at the valuation. It amazes me how many people send other people to go and do the valuations. Now I get it. We're busy. We might have work. We might have childcare commitments. I know some people just don't want to do it because they can't be bothered. They think they've done the hard work, which is buying it and doing the refurb. But honestly, go and meet the valuer. Chaperone them around the property.

Just be there to answer any questions that they might have to give them any information that you think that they might benefit in having. Again, you're not telling them what to do. They're going to run the valuation the way that they want to do it. Some valuers are great, really chatty. I have had some fantastic conversations with some and some don't want to know, don't want to talk to me. They've got out the wrong side of the bed that day. They just might as well just sort of put the headphones in and you've got to read the situation, but I would definitely recommend you go.

And you personally do the valuation or you at least sort chaperone them around it when it's being done. It is one of the key activities as a business owner in this game. I recommend everybody does do that. Also a nice opportunity for you to present the valuation pack to them directly as well. Okay. So we've talked about a few things today. First and foremost, we talked about creating value. Then we talked about understanding how HMOs are valued. Then we've talked about setting the valuation strategy early.

All the planning that we've talked about building your evidence and position, putting that pack together. Talk very briefly about timing and market context, just being conscious of things going on externally. Then we've talked about executing on valuation day. Hopefully everything goes well and you get the valuation that you want, but what if you don't? Well, first and foremost, we have to try and understand was this a genuine down valuation or do we need to take this on the chin?

Have we been too optimistic here? Was this us? Have we set our expectations unrealistically high? I hate to say it, but more often than not, that is the case. I've seen a pattern as well with this. Often the same people moaning about down valuations. There's probably no coincidence that it's the same person getting down valuations on a consistent basis. It is because they are either not doing what I'm saying they should be doing in today's episode.

Andy Graham (35:37.401)

or because they are fundamentally just being too optimistic and the data isn't there to support it. So just be mindful of that. Your broker, Ellie, she can really help you understand that. Now, you can appeal. If you get a valuation that you aren't happy with and you feel like you have grounds to appeal, you can do that. There's a process. There's always a process to do it. However, in my opinion, it is rarely successful. I'll give you a very sort of quick example. I had a property.

Going back a number of years now, had it valued. I'd owned it for a number of years, just coming up for a refinance. I've no idea who went around, can't remember now, but in their report back, they came back and said that this wasn't really a market to sustain students. I had HMOs in this area for about 12 years at this point. And there was a university campus in the town and I had loads of data and I could get all of that data from my managing agent. 

So they were fundamentally wrong, but even on appeal with this case in hand and some evidence, they still just did nothing about the appeal. So that's just something to be mindful of. I haven't seen many appeals go the way that people want them and it's never worked for me. So I generally don't bother. What you have to figure out is if it, whether or not it really is worth challenging, know, how substantial is the down valuation.

Has it killed the deal for you? Has it left you in a real predicament or is it something that you could just work for a few years and maybe try and extract it at a valuation in the future? If not, and appealing doesn't look like it's going to be successful, your consideration could be to go to another lender. Now the issue with this is it's going to take time. You're to have to go back through an application process first, then back through a valuation process. Then it's going to have to go through credit, the lender, and only then are you really going to find out.

And that could easily take a couple of months, maybe more depending on Christmas is in the way and summer holidays, can take longer things around the world could happen. Interest rates might go up. So it's not a decision to be taken lightly is what I'm saying, but it probably does stand the best chance of getting the result, or at least getting you closer to the result that you want. However, you also have to be mindful that that lender, it depends on whether or not you have a choice of the valuer, but

Andy Graham (37:55.953)

Well, you have to make sure the same value doesn't go back to the asset for a different lender. You're going to get the same result. So just be mindful of that. So a few things to consider if it doesn't go wrong. It's happened to me when it's been a bit soft. I tend to just take it on the chin, but it hasn't been that soft. It hasn't been that far out. It hasn't fundamentally like killed the deal or made the exit impossible. And that's the bit I really want to point out. If your deal is so contingent on this valuation figure, you have to be very careful. You have to really think about it. 

Yes, we want to get the best possible revaluation that we can, but at what expense guys? Just be careful. Make sure you don't get yourself into deals that are so contingent on a really high valuation that you put yourself at a really, really great risk because it just isn't worth it. Build those contingencies in there. Maybe that's just an agreement with your investor or your business partner that if it doesn't quite go the way that you want you'll just leave a little bit more money in the deal and it'll cost what it'll cost. Okay. There are different ways to manage those sorts of things but be careful about being too aggressive with valuations because it really can come back and bite you. 

Okay. So there we go guys. Valuations. It isn't a single moment. It's not a silver bullet strategy but it is something that you can influence and it starts at the very beginning right at that point of appraising your deal for the very first time. If you get it right.

It can massively improve your ability to scale. And what I would say, and I hope that this gives you bit of confidence, once you've done one or two, you'll have a template. And if it's getting you the results that you want, that's something that you can rinse and repeat very predictably. And that's when it becomes much easier to scale your business up. If it doesn't quite go the way that you want, hopefully you can stomach it and you could try it a different way the next time, just because it hasn't worked or you haven't got what you want. The first time doesn't mean you won't on subsequent attempts as well. So just be mindful about this stuff. look, valuations and revaluations, it is a really critical part of the process. It is absolutely something that you should pour a lot of time and a lot of effort into to make sure that as far as possible, you control that outcome, but be realistic. Utilize the people around you. Take advantage of people who are happy to help you, those expert relationships.

Andy Graham (40:14.693)

And I promise if you do all of that and everything I've talked about in today's episode, stand a much greater chance of getting to where you want. Now, as I said earlier, if you head to thehmoroadmap.co.uk right now, you can go and watch the videos that we've got on commercial valuation. You can understand that methodology. You can be the expert. You really ought to be. They're by me, they're by Ellie. And honestly, if you understand that stuff, you are going to significantly increase your abilities to get the valuations that you want. 

Now, if you want to take things a step further and come and work with me directly, just head to the show notes now. There's a link there and you can watch a video and you can find out a little bit more. You can also book a strategy call with me to discuss that in person. So just head to the show notes now and check that out if you like. That's it, guys. Thank you again for tuning in. 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.