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Case Study – Small HMO commercial valuation

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Case Study –  Do you want to maximise the valuation on your HMO that has 6 bedrooms or fewer, to increase the amount of funding available?

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. In this case, we were tasked with providing an option that would carry out a commercial HMO valuation on the property. We hope you find this recent case study helpful.

The Property

The property was a recently converted 6-bed HMO, with all 6 rooms having their own en-suite and double beds. All the rooms were let out on standard ASTs and the property had an EPC C rating.

Client Background

Our client is a very experienced landlord with an ever-growing portfolio that consists of both standard single self-contained properties but also HMOs that they have converted themselves to incredibly high standards.

The majority of their property investment revolves around transforming properties that are often outdated or in need of some TLC, into beautifully presented and generously proportioned homes – increasing the property’s value in the process.

Client’s Requirements

Our client purchased a standard 4-bedroom home for £305,000, spent circa £145,000 completing its conversion into a 6-bed HMO and required a HMO BTL mortgage on the property. The property purchase and works were all funded by the client’s own funds and the key focus for the client were to pull out as much money as possible from the property to go towards the next project. This in turn had the client wanting to instruct a commercial HMO valuation on the property.

Across the BTL market, the standard valuation procedure for lenders to follow when valuing HMOs is that a property with 7 bedrooms or more will always qualify for a commercial/investment valuation.

However, if the property has only 6 or fewer rooms, you’ll often find that a bricks-and-mortar valuation will be carried out on the property, or at best it will be a ‘hybrid’ valuation which is considered the ‘middle man’ between a standard valuation and a commercial valuation but we often find that the values provided on a hybrid valuation tend to be very similar to that of a bricks-and-mortar valuation.

Therefore, a commercial HMO valuation on a 6-bed HMO can be hard to come by.

Solution

Fortunately, we have access to a HMO Buy-to-Let mortgage lender who is able to meet the client’s above needs – simply put, they can instruct a commercial HMO valuation on a 6-bed HMO. We completed a full case referral as standard, including copies of the ASTs for the valuer, along with a well-documented schedule of works and this HMO Buy-to-Let mortgage lender came back and confirmed they would be happy to proceed with the case.

The estimated investment value of the property was £560,000 – this asset was producing £53,400 a year in rental income.

The commercial HMO valuation was instructed within a week and all requirements were issued by the lender on day one.

By the time the valuation report came back, we had satisfied all of the lender’s requirements and after being signed off by a senior underwriter, we had the mortgage offer for the client. The value provided was £550,000 which the client was delighted with. Completion then took place within 2 weeks of the offer being issued, which again was another big win for the client.

A loan size of £412,500 was provided which equates to 75% loan to value.

Client Feedback

“Our experience with commercial valuations has been that they are consistent in our area, so we have a good idea of what the end valuation will be before we start a project. Once the surveyor has visited, we typically receive the report within 10 working days and then funds are very quick to be released by our lender; typically 2 weeks or so from the offer being issued.”

“All of this enables us to recycle as much of our money as possible and as quickly as possible, so we can quickly move on to the next project and take advantage of opportunities that appear suddenly in the market before others can make offers on those opportunities. None of this would be possible without the help of our broker Henry and his knowledge/expertise in this sector.”

How can Advocate Finance help?

Have you recently converted a self-contained home into a 6-bed HMO and need to finance it onto a HMO Buy-to-Let mortgage now the works are complete? Or are you an existing HMO owner looking to refinance your current mortgage to capital raise as much money as possible? If so then please do get in touch. We have established a reputation for truly understanding the complexities of the property finance market and providing tailor-made solutions to meet your needs.

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Picture of Henry Barley

Henry Barley

Senior Property Finance Adviser | henry@advocatefinance.co.uk | 01206 544333
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Picture of Henry Barley

Henry Barley

Senior Property Finance Adviser | henry@advocatefinance.co.uk | 01206 544333