How do valuers value a HMO?
We see a lot of transactions which involve valuations of HMOs and one of the most common questions we get is around the methodology. Over the years lenders have given me conflicting information but, having spoken to a RICS surveyor, they have informed me that if the HMO has full planning and a licence in place, you should be able to use the comparable and investment methods of valuation.
The first thing to do is always check the Local Authority’s website as each borough treats HMOs differently. Each room will have to meet a minimum room size requirement along with the number of bathrooms and kitchens within.
Once you have this info, then do some research into what each room can let for on the open market to private tenants (not the local housing allowance rate). Once you have your gross rent, you then need to allow for voids and the fact that HMOs are management intensive so, typically, valuers would take up to 10% off this figure to provide a net rent. You then capitalise this figure by a yield (based on HMO sales evidence) to provide you with your market value.
As a double check, it’s worth noting what houses on the road/surrounding area are selling for to ensure you are not too high or too low as fundamentally it’s underlying bricks-and-mortar value will be a house.