What is the difference between HMO’s and Multilets?

Each lender has a different interpretation of what a HMO is and what a Multi let is. The word ‘Multi let’ is generally more acceptable to lenders.  It is often a question of degree. E.g. if each room has its own facilities i.e kitchen & bathroom it usually would be considered a HMO. While a property with only shared facilities and less than 5 occupiers may be considered a multi let. For Housing Act purposes a property occupied by 3 unrelated people is classed as a HMO. 

Is it was better to buy an  already established HMO or to create your own?

I would prefer to buy an existing HMO providing:-
(a) The price is right – ideally 20% + yield minimum of 12% yield but the yield is not based on what the existing landlord is getting but on how much I think I could get and deducting the cost of improvements in achieving that.
(b) There is a demand for the property offered.
(c) I would prefer the existing HMO to have been in existence for ten years or had planning permission. In the 17 years I have been operating as a HMO landlord I have only seen three existing HMO’s come up for sale and I bought them.

I would like to know how, and with which lender(s), you raise a loan on an HMO based on the rent achievable. Which seems far above the market value of a property not converted to an HMO?

A loan based on the rental income would be a commercial loan. The maximum LTV is 75%.  A few months ago before the credit crunch, I could have answered that question easily, however things have changed. All of the high street lenders will tell you that they are still lending, eg Barclays, Natwest, HSBC etc but they are very nervous and it’s unlikely that someone without experience will be able to get a commercial loan for a HMO. 

I have started looking at corporate/business loans as a viable alternative. It would be great to hear about what you are doing to raise finance and your experience in raising corporate/business loans.

I was previously borrowing via Salt & Abbey National but both lenders have exited the HMO market.  I am finding it difficult to find an alternative lender.
When I have resolved this problem I will keep you updated.

Thanks for your News letter. My question is in your experience what do you consider to be the best tenant profile for your HMO’s Students , Nurses, Professionals etc which are the best for a beginner in the HMO market to target a) to secure a good tenant demand, b) to make a good return, c) from a management perspective? 

This matter is fully dealt with in my book ‘How to become a Multi millionaire HMO landlord’.
To summarize professionals are the best and easiest to deal with, if you can get them. This will depend very much on the location of the HMO. Professionals normally prefer City Centres and or good transport links.

I have often found that when filling in the forms for mortgages, often it asks whether the property is let under an AST, also have indicated they don’t loan on student tenants. Is there a separate market for this kind of let. Could you give some examples of companies that will loan on this basis. Similarly on building insurance, do you end up paying a premium for this and what kind of insurers would you use?

Thanks for your question. Yes some lenders do not like students and even more dislike DSS. The market for finance is very difficult at the moment – you just have to keep trying. The lenders I would approach are the commercial lenders but they only lend 70% LTV – try the commercial side of the main banks.
With insurance join one of the landlord associations and use their recommended brokers – they do not distinguish between students, DSS or working people and give very competitive rates.

 What are gifted deposits? How do they work and can I use gifted deposits to do 'no money down' deals

Gifted deposits are usually associated with buying new build property from a developer where instead of discounting the asking price,the developer gifts you the deposit. In theory, if you are buying a £100,000 property with a 15% gifted deposit, then the developer is gifting you £15,000. You therefore do not need to finance a deposit, and can borrow 85% of the list price of £100,000 and thereby purchase the property with no money down. However, this was possible a few years ago but now most lenders will not accept gifted deposits and if they do, they will not take into account gifted deposits of more than 5%. Most lenders now look at the gifted deposit as a price reduction through the back door and will assume the purchase price to be the list price less the amount of the gifted deposit. Generally lenders like to know that you have some investment in a property which is why you are asked to provide a deposit. ( Thank you Ranjan)