In this case study, we look at the details of a HMO just outside of York city centre. Originally functioning as a rent-to-rent managed by Katrina Jones and her company Kendall Bailey, she later purchased the property and refurbished it into a high-quality HMO for professional sharers. The project was a long-term goal for Katrina and she’s pleased with the monthly income and the long-term asset for the future.
The primary strategy that Kendall Bailey uses is rent-to-rent. We have our standard ways of sourcing rent-to-rent deals, however, this specific deal came from a completely different place.
I ran an event for entrepreneurs in London back in 2016 called Project Inspire and one of the women that came along told her parents that she’d met me and that perhaps I could help them with their property in York. They then contacted me and said that they had a HMO in York that they had purchased for their daughter to live in while she was at University but that she had now graduated and they wanted to know if I’d like to take it on as a rent-to-rent. I went and had a look around and it was perfect so decided to purchase it.
It was originally a 3-bed student house with an office for the students to work in as one of the rooms. This was something that we didn’t need as a professional shared house, so we converted the office into a fourth bedroom.
I always let our landlords know that if they are looking to sell, to come to us first. They called me one day during 2019 and said they would like to sell and, after talking it through with them, I decided to purchase it myself. Now, I own the property and rent it to professional sharers as a high-quality HMO.
How Does Rent-to-Rent Work?
It’s such a simple model, and it’s probably the best strategy out of all the property investment strategies for people who want to get started with HMOs. If people want to replace their income, quit their job and improve their lifestyle, then rent-to-rent allows you to get your head around investing quickly and easily.
You look for an existing student house, guarantee the landlord on-average market rent for it, invest a little bit if needed to uplift it and then rent it out for a slightly higher rent to full-time working professionals, making the margin in between. It really is that simple.
People often question why the landlords don’t do it themselves, however, not everyone who owns a property wants to spend their time managing it. Landlords are really happy for us to take it on and are so grateful too. We get the odd tear when people see the refurbishment we’ve done and they realise that it is their asset, their investment and now the rent is guaranteed and they don’t have to stress.
Does Rent-to-Rent Help for Purchasing Later?
It’s the perfect stepping-stone to purchasing because you don’t need tens (or hundreds, depending on whereabouts in the country you are) of thousands for a deposit and you can understand the workings of a HMO before purchasing one of your own.
It really gives you an opportunity to see and learn if it’s really for you and whether you definitely want to do it. It’s very quick and easy too. It can take four weeks from finding a property to having cash-flow ready to go. If you purchase, however, it can take lots of time, you need money and there’s tons of paperwork, so this is like a hybrid of purchasing a HMO. In some cases, it can be more lucrative too.
What Gave You The Confidence That It Would Work Once You’d Purchased It For Yourself?
It’s only a short walk to the city centre, it’s in a great location and it was a great price, so it was a no brainer. As I’d managed it, it was obvious to me that the figures wouldn’t really change because instead of guaranteeing the rent for the landlord, I’d just be paying off the mortgage, so the figures stacked perfectly. There was nothing else that I really needed to think about.
How Did You Finance The Property?
My dream for the rent-to-rent business, Kendall Bailey, was to use the profit to purchase for myself. Kendall Bailey is a group of companies, so I saved through that, and the purchase was financed through saved profit from the business.
It was my dream to purchase a property on a capital repayment mortgage (my preferred method of purchasing) that didn’t require a JV partner, an investor, or someone else’s cash and it felt incredible to complete!
I did a huge refurbishment on it and then, of course, the rent increased to work in line with the refurbishment. Kendall Bailey manage the property for me on a standard Management Agreement.
How Much Work was Required?
Oh, it was all fun and there was nothing structural, however I did go to town! I ripped out the kitchen and bathroom, and spent around six full weeks on the refurb with new paint, carpet, all new furniture, light switches – there was nothing left, it was gutted and started again.
I had a standard in mind of what I wanted to bring to the market. Kendall Bailey started off as basic professional lets. We then moved into more high-end homes, before creating a boutique standard of shared housing. It’s important to remember that with rent-to-rent, you would only ever invest £3-5k maximum, as long as the return mirrored it and made it financially worth it.
As a rent-to-rent company, we also never rip out bathrooms or kitchens unless the landlords decided to do it themselves, so it was really fun to be able to go boutique and actually do the kitchen and bathroom as well.
My number one rule for rent-to-rent is always to shop in B&M, The Range or Asda, so the exciting thing about being the owner of the property was that suddenly one day I was in John Lewis and Next! Nothing brings me more joy than creating a home where someone walks in and can’t believe it’s his or hers and I really wanted to give that to someone.
A lot of time in property, people look at it purely financially. I think in business, finance is important, but sometimes you can get more out of property than just money. For me, the joy that is brought by spending that little bit more, that might bring a little bit less each month but has tenants really excited about their home really warms my heart. I could have done the property for around £10k less, however I wouldn’t have been anywhere near as excited and neither would the tenants. I enjoyed every second of the refurb and would happily live there myself.
Is that worth an extra £10k for me over a lifetime deal? Hell yes! It’s also about creating experiences for people and, for me, that’s priceless.
Did You Know The Higher Market Was There And That It Would Pay Off?
100%. Our rooms rent for at least 25% more than the average market rent. You can move into a student-style HMO and they are ten a penny – it’s great because it’s what a lot of people want, however, I wanted to create something that was high-end and boutique.
When I lived in Australia as a professional, I couldn’t afford to purchase my home and I didn’t want to live by myself, so the shared house model was my best option. I didn’t want to live the student lifestyle though, I had a great job and I wanted to come home to a luxurious sanctuary of life! I knew that I was my ideal client and I knew people would love it.
The Financial Details
What Went Well?
I genuinely think it all went really well! The landlords were really kind and patient when it fell through, which was an absolute blessing. The refurb was one of the most fun things I’ve ever done – and the return was higher than expected. Plus, the fact that I have a rent-to-rent company that manage it is obviously a bonus as well.
It didn’t need anything structural doing, so the refurb went very smoothly. I’m really pleased with the response too. The feedback I’ve received from Kendall Bailey is that the level of appreciation that tenants have for the décor, the finishing touches and the love that has gone into it was really beautiful, so that makes me very happy indeed!
What would you do differently?
Being in Dubai when trying to put my mortgage through threw a spanner in the works! Other than that though, there isn’t anything I’d do differently! It’s been such a lovely experience.
Join Katrina for a free instant access online Masterclass showing you how to replace your income using Rent to Rent. Register for the free Rent to Rent Masterclass here.
Source link: https://www.insidepropertyinvesting.com/rent-to-rent-as-stepping-stone-towards-purchasing-hmo/ by Bethan Andrews at www.insidepropertyinvesting.com