I can see people are puzzled as to why HMO’s aren’t valued as a simple multiple of income by commercial lenders when commercial properties usually are.
I would suggest it is because there are some fundamental differences between the two…
- leases are long, up to 20 years
- lenders take comfort from the lease providing an increased likelihood that the loan will continue to be serviced
- leases are often fully repairing, meaning the tenant is responsible for the upkeep
- leases have built in break clauses and rent reviews
- the value of the property reduces considerably when vacant, in some cases by 50%
- the property has a designated commercial usage with the local council i.e. A1, C1
- the property cannot be used for a domestic dwelling if not occupied by a commercial tenant
- commercial tenants runs a business of whatever sort and can therefore be viewed as generally more financially aware
- leases are rarely longer than 12 month AST’s
- sometimes licences...