This case study examines the strategic transition of a client’s property from a professional House in Multiple Occupation (HMO) to supported living, highlighting the challenges, decisions, and outcomes involved. The HMO property is located in Sandwell and originally operated as a 6-bed professional HMO but faced significant hurdles that necessitated a shift in strategy.
Initially, the property functioned smoothly as a professional HMO, catering primarily to blue-collar workers from the Sandwell and Dudley areas. Over a 12-month period, occupancy rates averaged around 95%, with rental prices ranging between £450 and £550 per calendar month (pcm). The blue-collar tenant mix and high occupancy ensured a steady flow of rental income, creating a seemingly stable investment.
Despite the high occupancy and steady rental income, the property management faced several operational challenges. One major issue was managing the electric and heating usage. The property was equipped with Hive thermostats, allowing remote control and scheduling. However, tenants frequently overrode these settings. Reports from cleaners indicated that the heating system was often left on high during warm summer days while windows were left open, leading to unnecessarily high energy consumption and costs.
Additionally, the constant need for maintenance and repairs added to the operational burden. Issues such as blocked drains, malfunctioning appliances, and wear and tear from tenant turnover required regular attention and financial outlay. These operational inefficiencies began to erode the property’s profitability, causing concern for the landlord.
The energy price hike in 2022 was a critical factor that influenced the landlord’s decision to re-evaluate the property’s use. The running costs of the utilities for the HMO nearly doubled, significantly impacting profitability. This period affected not just HMO landlords but the entire country as we were amid a cost of living crisis. The landlord, already dissatisfied with the operational inefficiencies, decided that a change was necessary.
Simultaneously, we managed another high-spec HMO for the landlord in Dudley, leased to a social housing provider. Observing its stable performance, the landlord considered a similar arrangement for the Sandwell property. The key motivation was to find a more predictable and manageable financial model. By leasing the property to a government-backed social housing provider, the landlord could alleviate the stress and running costs and focus on growing their property portfolio while also dedicating more time to personal matters.
The next step involved finding a suitable guaranteed rent provider. After thorough research and negotiations, the landlord converted the property to supported living for young adult care leavers aged 16-18. This strategy not only offered a stable income stream but also served a socially beneficial purpose, providing much-needed support for vulnerable young adults transitioning out of care.
The selected social housing provider operates supported living accommodations for young care leavers and ensures that a care worker is present at the property at all times due to the age and needs of the service users. This factor played a significant role in the landlord’s decision.
Additionally, the rent for the property was highly attractive. The landlord now nets more income than they ever did running the property as a professional HMO. Prem Property continues to act as the landlord’s eyes and ears, ensuring that the property remains maintained and fully compliant throughout the lease period.
The transition from a professional HMO to supported living brought several benefits:
This shift in strategy has encouraged the landlord to explore further opportunities within the supported living and social housing sectors. Looking ahead, they plan to continue investing in properties that can be leased to social housing providers, aligning with both their financial goals and social responsibility values. Additional property acquisitions and refurbishments are in the pipeline to expand their portfolio within this niche market.
The next step involved finding a suitable guaranteed rent provider. After thorough research and negotiations, the landlord converted the property to supported living for young adult care leavers aged 16-18. This strategy not only offered a stable income stream but also served a socially beneficial purpose, providing much-needed support for vulnerable young adults transitioning out of care.
The selected social housing provider operates supported living accommodations for young care leavers and ensures that a care worker is present at the property at all times due to the age and needs of the service users. This factor played a significant role in the landlord’s decision.
Additionally, the rent for the property was highly attractive. The landlord now nets more income than they ever did running the property as a professional HMO. Prem Property continues to act as the landlord’s eyes and ears, ensuring that the property remains maintained and fully compliant throughout the lease period.
