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Periodically, we come across cases that we believe other property investors would be interested to learn about. The summary below is one such case, highlighting the client’s unique requirements and how we provided a solution they were happy with. We hope you find this recent case study helpful.
The Property
This property was a small 6-bed HMO that the clients had recently refurbished to a high specification which included adding 6-ensuites. The clients main goal was to achieve an investment valuation, which would then allow them to refinance and release as much equity as possible.
Lenders definition of a small HMO is anything with 6 bedrooms or less. Unless the property is located within an Article 4 area, it can be difficult to obtain an investment valuation on a small HMO. This is due to the property not requiring planning permission (Sui Generis) to be operated in this way, meaning the property could easily be converted back to a single family home.
Client Background
The clients are very experienced in HMO conversions having managed many projects both personally and for other developers. They were able to use their experience and knowledge to configure this property into a 6 bed, all en-suite HMO to attract professional tenants.
Client’s Requirements
Most lenders will instruct a vacant possession valuation on a small HMO. This is also known as a bricks and mortar valuation, and is based on the current market value using local comparables. My client specifically stated that he wanted to achieve an investment valuation so the lending options were limited. An investment valuation, also known as a commercial valuation, is valued on a yield basis which takes into consideration the rental income the property generates.
This particular property was not located in an Article 4 area, however as the client had added 6-ensuites to the property this then becomes ‘over-adapted’. There are a few of lenders who can instruct an investment valuation on a small HMO which is ‘over-adapted’.
Solution
After discussing options with the clients, they decided to proceed with a lender who could instruct a commercial valuation, even though they were not the most competitive in terms of pricing.
The client had anticipated a valuation of £290,000. The valuer actually returned a valuation of £307,000 which was higher than what the clients had requested. This was a fantastic outcome for the clients as it enabled for them to increase the amount of equity they could release from the property which was their main goal.
From the valuer providing a higher valuation, this enabled the clients to raise an additional £13,600 which they were not expecting. Given the clients strategy of buying, refurbishing then refinancing, this was overall a really positive outcome for the client as they now have additional funds to use on their next project.
Client Feedback
“Megan and her team at Advocate were absolutely fantastic at sourcing us a great refinance deal for our HMO. I would highly recommend them and will be using them again for our future refinance requirements.”
How can Advocate Finance help?
If you own a HMO that you think could benefit from a commercial valuation, please get in touch so we can discuss your options.
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