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............& so it begins!
Buy-to-let: creating bedsits for 20pc returns is just a response to the market
Comment: Many readers were unimpressed with the tactics of millionaire property developer Jim "HMO Daddy" Haliburton but he is just responding to the market, says Richard Dyson
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Two pieces of research published this week showed the effect high property prices are having on landlords' returns, especially in London and the South East Photo: keith morris / Alamy
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By Richard Dyson
1:33PM BST 25 Jul 2014
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Markets have a way of exposing unpalatable truths. One such truth is that if Britain does not build more homes, then more and more existing properties will be chopped up into tiny units.
Ten days ago I wrote about self-styled “HMO Daddy” Jim Haliburton, pictured below, who makes 20pc annual returns by buying three-bedroom Victorian homes in the West Midlands and slicing them up into five or six bedrooms, each of which is let to a separate tenant.
Here is his system: buy the property with cash for £80,000; spend £20,000 on the makeover, then let six bedrooms each at £275 per month. Hence a £20,000 income on a £100,000 outlay. It doesn’t really matter what happens to the capital value of the property, the profit is in the income.
Jim Haliburton, the self-proclaimed 'HMO Daddy’, has made millions dividing up Victorian homes in the Midlands
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Mr Haliburton is currently buying and converting a property every few weeks, alongside his second job of training other people how to do exactly the same. And he has many takers. When that piece was published readers raced to criticise Mr Haliburton and the whole HMO – “house of multiple occupation” – model of buy-to-let investing.
A typical comment said: “These people have bought up the properties that should have been available to first-time buyers, rented them back to them, and made themselves a fortune.”
There was also much comment about the creation of “HMO slums”, with people saying the character of streets and neighbourhoods had deteriorated following the arrival of Haliburton- style landlords.
But it is the market at work.
“Traditional” buy-to-let, where someone buys a two-bedroom flat and lets it to a single professional or couple, doesn’t stack up the way it once did. Two pieces of research published this week showed the effect high property prices are having on landlords’ returns, especially in London and the South East, where prices have been rising at double-digit rates. Property group Knight Frank said yields in London (that’s rent against property price, before any costs are considered) stood at 4.3pc.
And BM Solutions, Britain’s biggest landlord lender, published research based on real landlord borrowers, putting the figure at 5.7pc. After mortgage interest, maintenance and other costs, the net return to landlords could easily be nothing, or a loss.
The problem is that while property prices have galloped upwards, tenants’ incomes have not increased on any similar scale – and hence rents have met a ceiling.
• Map: the towns that offer the best buy-to-let returns
In another piece of research published this week, an update to the English Housing Survey produced by the Department for Communities and Local Government, it was found that tenants in the private rented sector spend the equivalent of two days of their weekly wage on rent. That’s twice as much as average home owners spend on their mortgage. Renters just can’t afford to pay more. With that as the backdrop, it’s getting harder for property investors to make a turn.
The answer? The outcome as shown by the market is that properties shrink and become more crowded, Hong Kong style, as Britain adjusts to its growing population and legacy of inadequate homebuilding. And it’s not just the HMO investors like Mr Haliburton and his followers who drive the trend. Authorities in city boroughs are increasingly having to intervene where they deem properties “too small” as owners convert lofts, garages, sheds and other outbuildings into tiny lets, with or without consent.
A north London borough last month prevented the letting of a studio flat because it was too small to be safe, even though tenants had been found within hours of the property (a room, barely big enough for a small bed) being marketed at almost £200 per week.
Jim Haliburton argues he is doing tenants a favour by offering his bedsit-style accommodation on a mass scale. They can save more money toward buying their own home if they pay less now in rent, he says.
I have my doubts. But what is not in doubt is that unless more homes are built, the market is behind Mr Haliburton’s approach of chopping up existing properties into ever smaller, more affordable bedsits. That is where the demand lies and the returns, and so that is where the money is going. If it hasn’t happened yet, get ready for an HMO Daddy to start buying up near you.
Buy-to-let: creating bedsits for 20pc returns is just a response to the market
Comment: Many readers were unimpressed with the tactics of millionaire property developer Jim "HMO Daddy" Haliburton but he is just responding to the market, says Richard Dyson
<!-- Opta Widget start --><!-- Opta Widget end -->
Two pieces of research published this week showed the effect high property prices are having on landlords' returns, especially in London and the South East Photo: keith morris / Alamy<!-- remove the whitespace added by escenic before end of tag -->
By Richard Dyson
1:33PM BST 25 Jul 2014
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55 Comments Markets have a way of exposing unpalatable truths. One such truth is that if Britain does not build more homes, then more and more existing properties will be chopped up into tiny units.
Ten days ago I wrote about self-styled “HMO Daddy” Jim Haliburton, pictured below, who makes 20pc annual returns by buying three-bedroom Victorian homes in the West Midlands and slicing them up into five or six bedrooms, each of which is let to a separate tenant.
Here is his system: buy the property with cash for £80,000; spend £20,000 on the makeover, then let six bedrooms each at £275 per month. Hence a £20,000 income on a £100,000 outlay. It doesn’t really matter what happens to the capital value of the property, the profit is in the income.
Jim Haliburton, the self-proclaimed 'HMO Daddy’, has made millions dividing up Victorian homes in the Midlands
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Mr Haliburton is currently buying and converting a property every few weeks, alongside his second job of training other people how to do exactly the same. And he has many takers. When that piece was published readers raced to criticise Mr Haliburton and the whole HMO – “house of multiple occupation” – model of buy-to-let investing.
A typical comment said: “These people have bought up the properties that should have been available to first-time buyers, rented them back to them, and made themselves a fortune.”
There was also much comment about the creation of “HMO slums”, with people saying the character of streets and neighbourhoods had deteriorated following the arrival of Haliburton- style landlords.
But it is the market at work.
“Traditional” buy-to-let, where someone buys a two-bedroom flat and lets it to a single professional or couple, doesn’t stack up the way it once did. Two pieces of research published this week showed the effect high property prices are having on landlords’ returns, especially in London and the South East, where prices have been rising at double-digit rates. Property group Knight Frank said yields in London (that’s rent against property price, before any costs are considered) stood at 4.3pc.
And BM Solutions, Britain’s biggest landlord lender, published research based on real landlord borrowers, putting the figure at 5.7pc. After mortgage interest, maintenance and other costs, the net return to landlords could easily be nothing, or a loss.
The problem is that while property prices have galloped upwards, tenants’ incomes have not increased on any similar scale – and hence rents have met a ceiling.
• Map: the towns that offer the best buy-to-let returns
In another piece of research published this week, an update to the English Housing Survey produced by the Department for Communities and Local Government, it was found that tenants in the private rented sector spend the equivalent of two days of their weekly wage on rent. That’s twice as much as average home owners spend on their mortgage. Renters just can’t afford to pay more. With that as the backdrop, it’s getting harder for property investors to make a turn.
The answer? The outcome as shown by the market is that properties shrink and become more crowded, Hong Kong style, as Britain adjusts to its growing population and legacy of inadequate homebuilding. And it’s not just the HMO investors like Mr Haliburton and his followers who drive the trend. Authorities in city boroughs are increasingly having to intervene where they deem properties “too small” as owners convert lofts, garages, sheds and other outbuildings into tiny lets, with or without consent.
A north London borough last month prevented the letting of a studio flat because it was too small to be safe, even though tenants had been found within hours of the property (a room, barely big enough for a small bed) being marketed at almost £200 per week.
Jim Haliburton argues he is doing tenants a favour by offering his bedsit-style accommodation on a mass scale. They can save more money toward buying their own home if they pay less now in rent, he says.
I have my doubts. But what is not in doubt is that unless more homes are built, the market is behind Mr Haliburton’s approach of chopping up existing properties into ever smaller, more affordable bedsits. That is where the demand lies and the returns, and so that is where the money is going. If it hasn’t happened yet, get ready for an HMO Daddy to start buying up near you.
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