Dentists Who Invest Podcast

Are HMOs Worth It? [2025 Update] with Dr. Jassy Sidhu

• Dr. James Martin • Season 3 • Episode 333

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Thinking about stepping up your property investment game? In this episode, Dr. Jassy Sidhu shares his expertise on Houses in Multiple Occupation (HMOs) and why they could be the answer to boosting your cash flow—even with high interest rates and tough property prices. We unpack how recent stamp duty changes and the shifting market landscape present golden opportunities, particularly when buying from retiring landlords who are ready to let go of their portfolios.

Dr. Sidhu gives us a peek into his own investment journey, like turning an old pub into a high-performing HMO, and the lessons he’s learned navigating bridging finance. Whether you’re just starting out with a single buy-to-let or considering a leap into more complex ventures, this episode offers practical steps and strategies to help you make informed decisions.

If you’re ready to explore the financial and strategic ins and outs of HMOs and start maximising your property investments, then this one’s for you.

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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.

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Dr James:

We've got another exciting episode of the Dentists Who Invest podcast today with my good friend, Dr Jassy Sidhu, on all things property and specifically HMOs whether or not they make sense as an investment, whether you're a beginner or an expert. We're going to be delving into that today and also learn a little bit about Jassy story, because you know what? If there is anything that can be done in the sphere of property, chances are this guy has done it. He's got an absolute deluge of knowledge on that front. We're gonna jump straight in momentarily. If you like what you heard today, guys, feel free to search Dr Jassy Sidhu on the Dentists Who Invest podcast. There's plenty more property content where this podcast came from today, if that is your thing. HMOs is something that is a huge black hole in my knowledge, as is property by extension of that, Definitely not my forte, and that's why, whenever it comes to anything that's even vaguely smells like property, I get Mr Jassy Sidhu on the podcast. Dr Jassy Sidhu, how dare I?

Dr Jassy:

I worked five years for that.

Dr James:

I'm sorry. I'm sorry, I take that back. I'm sorry. I'm sorry, I take that back. I'm sorry. Can we just forget that? That happened anyway, Dr Jassy. Sidhu, we're here to talk about HMOs, just high level, and just have some fun and just shoot the breeze and learn a little bit today, as we always do.

Dr Jassy:

HMOs house of multiple occupancy, right Jassy yeah, yeah, that's correct, it has multiple occupancy, it's. It's basically where, um, you get like a house and you rent the individual rooms out um, a bit like we used to do back in the day at university um, and you have some kind of shared facilities. Um, it's quite a quite a common kind of like um method in property because it cash flows a lot better than if you were to rent the whole house to to a single person interesting, and it'll be.

Dr James:

It'll be, it'll be intriguing to get into the whole cash flow side of things and yields and what have you. But just before we do that, buy the lets. That's the go-to that everybody defaults to, right, but they're not once what they were yeah, yeah, I.

Dr Jassy:

I mean it's a lot more challenging now because interest rates are a lot higher and prices aren't really coming down. In relation to that, because people that are selling are still looking at what the prices were just after COVID when they went up. So they don't want to reduce the prices, but then, with the interest rates being so high, it's hard to make deals stack up Still there. I mean mean we're still buying, but there's probably not as much as as there once were. However, on the flip side of that, because less people are buying, you've got a lot less competition for each deal, um and so, and so you can pick up some, some good bargains. You wouldn't set the risk do you?

Dr James:

do you think it's fair to say that, despite what the market's doing, broad strokes, despite what the market's doing, if you really, really, really know your stuff, you can overcome it. 100, yeah, yeah, so okay, so.

Dr Jassy:

So the last budget. I'm sure everyone was like, oh my god, what have you guys done? Yeah, um, one of the big things that they did in terms of the property market was they increased stamp duty up to five percent. Um, and normally, whenever the government kind of push any kind of policy or any change like that, they'll normally give a period for to allow people to transition to that. So they normally say, look, it's going to start in april next year or the year after, but the change is going to come in. Dude, these guys said it's, it's implemented tomorrow.

Dr Jassy:

So so if you had purchases going through, your stamp duty charges just went up, like a friend of mine called me and he's like, bro, he goes, I need to find another 35, 40 grand for the purchases I got going through, and that's not money you can leverage either.

Dr Jassy:

That's odd cash, right. So when that happened, everyone was like, oh my God, this is going to kill property. This is going to kill property, blah, blah, blah. But in actual fact, I looked at it like, okay, looking at this, a lot of people now are put off by it, so a lot less people are going to go hunting for deals and the barrier for entry for new incomers into investing in properties now higher because you know you're paying an extra two percent on your stamp duty. So I was like that means that there's less bias, which means there's less demand to purchase these deals. So I was like probably a good time to go hunting now, because no one's going to be looking um and, to be fair, we've found one or two deals that we've kind of like um sorted out in the last couple of weeks.

Dr James:

So I'm hoping everyone will stay scared and I'll clean up well, this, this is the thing, right, because I'm I'm convinced, right, it's a little bit, uh, regardless of what the market's doing, you know, it's almost like that just makes the conditions a little bit harder, but what? Almost like that just makes the conditions a little bit harder. But what will overcome that every single time is, if your pure skill is is enough, that, yes, obviously it's going to affect your margins to a degree, but it can, it, can, it can blow that out of the water, right?

Dr Jassy:

yeah, yeah, it will, it will. I think what a lot of people don't realize is, um, in actual fact as well, when you're going to get a lot of older landlords now that want to sell because their property is getting too intense. You've got Section 21, which is going to go with the renters reform act and all that kind of stuff, so it's getting harder to do so. A lot of the private landlords are leaving the market and less are coming into it. So what that means is the amount of private renter stock in the UK is going to slowly diminish a little bit. That's going to push rents up, so long-term your yields should get better. So you're going to be making more cash flow, even though rates are higher than they used to be. So you know, it's all relative. I think Warren Buffett said it best. He said he said something like when people are fearful, be greedy. And it says something like when people are fearful, be greedy, and when people are greedy.

Dr James:

be fearful or buy when there's blood in the streets, even when it's your own as well. Fundamental. There's another one I like.

Dr Jassy:

That's the deep one, bro.

Dr James:

It's a little dark that one, but yeah, anyway, moving swiftly on, moving swiftly on, okay, hmos, because that's what we're supposed to talk about today, right? So is that something that you've got a little bit of experience with, right? You've done this, done it before.

Dr Jassy:

Yeah, yeah, we've got a fair few now and we continue to buy them simply because we like the cash flow it gives. The more cash flow we got, the more we got to invest. And also it kind of protects you when you have interest rate increases. So if you're cash flowing say pound 400 pound a month on a single let, if, if, if interest rates come up, you've only got a certain amount of buffer, whereas if you're on like hmos and you're cash flowing like 800 to a grand, um, you've got a bit more of a buffer then. Um, having said that, when you've got a HMO, you've also got to pay bills. Uh, and bills in the last couple years have been a lot higher than normal. So it's got its positives and negatives and nothing's immune to the market as well well, it's going to say that there must be cons in there as well.

Dr James:

I'm going to hope you know the way. With property it gets a little weird sometimes and certain things are tax deductible and certain things aren't. If it's held in your personal name, the bills are tax deductible, right yeah, yeah whether it's in a company or not, it's.

Dr Jassy:

It's that yeah, so, yeah so, with uh, with that it's more so if you have it in your, in your personal name. You're not allowed to um deduct the interest anymore, like like you can in a business. So that's what a lot, of, a lot of people now buy within a special purpose vehicle which is a limited company right, yeah, understood, okay.

Dr James:

So high level pros is that cash flow tends to be a little bit better. Can we, can we even maybe go into like yields a little bit on that one like percentages, because if I'm right and listen, you know more about proper than me. If you're going to buy the let 68 yield is a little bit what you might expect on your gross.

Dr Jassy:

Yeah, yeah, so yeah, with a single LAT. Obviously down south in London it's less. More up north you go, it gets higher. You're going to be yielding between probably about 6% to 10% um. We typically won't look at a deal unless we're going to be about about the nine, ten percent region, um. So so we make sure we get a a good price.

Dr Jassy:

Um, with your hmos you, realistically you should be, your gross yield should be about 13 to 14 because after your management, the bills, the council tax, the void periods as well, it's going to suppress it a little bit and voids is one that a lot of people take into consideration. But your properties aren't going to be rented all the time. They're going to be tenants moving in and out, and with HMOs you rarely get someone that's going to stay in for years and years. They're normally kind of short period. So it's, like you know, 6, 12, maybe 18 months. So when they go you're going to have to, like, spruce the room up a little bit again, replace any damaged furniture, you know, painting, clean the carpets, and then you've got a period where it's vacant and then you've got your letting fee to find a new tenant and that kind of stuff.

Dr James:

So that's what understood and it's, I'm gonna say as well. Say you've got like five rooms or something along those lines, well, you have to get five people was in one for each one of those rooms, which might not always be the case.

Dr Jassy:

There's an extra moving part there yeah, I know um the demand at the moment for HMOs has skyrocketed.

Dr James:

Oh, wow, from the tenant side or from the buyer side?

Dr Jassy:

Whenever you kind of go into any kind of recession or any cost of living crisis, people downsize. So people that were once in like a one bed might struggle to kind of like afford all the bills associated with that, struggle to kind of like afford all the bills associated with that. So they might then move to say, you know, if I get a room, the bills are covered. That's my fixed cost. It's easy for me to now budget in in these hard times. So at the moment when we've got a room available, it's gone within a day or two. Wow, and the rents have gone up as well, quite, quite a lot.

Dr James:

And just for context, you're based in Birmingham, right Birmingham area.

Dr Jassy:

Yeah, west Midlands. So I mean here now you're probably getting about 500 a room, 550, 600 if it's en suite. So yeah, and probably a few years ago that was probably about 400-ish 430.

Dr James:

So within the space of a couple years it's really skyrocketed I see, and these are not student labs, these are just for anybody really yeah, yeah, yeah.

Dr Jassy:

So we have like a range of tenants like blue collar workers. We've got lots of nurses, we have some doctors, it consultants get a lot of contractors also if, if there's like some kind of development and they're coming for three months to do a contract, they'll come and stay in the room for three months and then they'll go back home.

Dr James:

Gotcha, have you ever been in a place where you've converted one of your idol apps to HMO?

Dr Jassy:

Whenever we kind of look at a deal and we analyze it, we know exactly what we're going to do with it. So as soon as we purchase it, if we're going to do a HMO, we'll convert it then. And there I've never been in a situation where I've bought something as a single and then converted it Because I mean getting rid of tenants and all that kind of stuff. It's a nightmare. Yeah, not worth the hassle.

Dr James:

Yes, understood all that kind of stuff. It's a nightmare. Yeah, not worth the hassle. Yes, understood. Well, in that case, maybe what a better question is is okay, you bought a property and you're deciding right. Okay, I think this should just be buy to let, I think this should be HMO, or I think this should be maybe something else. What makes you decide where, what box you're going to put it in, what bucket you're going to put it in or where you're going to go with that property?

Dr Jassy:

that's a good question um oh, maybe it's a little intuition as much as anything, yeah, okay so I'm at a stage now where I can kind of look at a deal and I'll know within I know within like a minute or two whether it's worthwhile looking in in more detail. Um, but I've got yeah, you're right now, I've got the intuition. I look at it, I'll be like, oh, this would be good at this or we could do this. But I think when I first started off, I would probably look at a deal and analyze it as a single let, analyze it as a HMO, um, and then look at the difference, um, to kind of see what works best. And the way I used to do that is I used to work out something called your return on capital employed, uh, and and that will kind of tell me how much money I'm making relative to the money that's left in the deal, and I'd usually go with the one that gives me the kind of high percentage understood is this.

Dr James:

I'm just out curiosity is this all done within SPVs or in your personal name?

Dr Jassy:

So when I first started buying, I've got a couple in my personal name, but everything now is just all within the different companies that we've got.

Dr James:

Yes, because it makes more sense right from a tax point of perspective 100%.

Dr Jassy:

Yeah, you've got it Realistically of. You're best off doing everything within a company. I think when the first start as well, if you bought a property in a company, the interest rates were a lot higher because everyone used to buy in the person name. But now, like the, the, the the lenders have called wind that everyone's going to do in a company, so you get much competitive rates now in SPVs.

Dr James:

Fair enough, fascinating, okay, okay, cool, well it's. It's good to know this because these are like the little life hacks that save people a lot of time. And, yeah, because I guarantee a younger version of Jassy if he would have known that well, he probably just would have went and done that in the first place yeah, I, I mean it's.

Dr Jassy:

It's always worthwhile speaking to canter because everyone's yeah, what an individual circumstance. But genuinely speaking, um, yeah, buying companies, if you can good point, good point, okay, fair enough.

Dr James:

And you were telling me we're just catching up off camera as well, beforehand, weren't we recently? I don't know how much I'm allowed to say here, but we can always cut it out. Jassy, do this with your hands and we should stop talking right now okay, okay, okay, I don't mind sharing, yeah you bought a pub recently. It's going to become an HMO, which is kind of what spawned this conversation yeah, yeah.

Dr Jassy:

So I don't mind sharing stories like this because sometimes, like um on social media and all this kind of stuff, uh, whether it's, uh, buying dental practices or property or whatever it is, sometimes it seems like, oh, everything's, like rainbows and sparkles and everything. But the reality is it's, it's, it's not like that at all. There's a lot that goes on behind scenes that get helps you get the kind of results that you get and no one really sees that. So I mean, I've been on this podcast before, so we've spoken about a pub that we bought before um. We've actually got planning on that now for 17 bedroom HMO, so we're starting to build out of that in the next month or so. Um, but we've got another pub that we're buying, um, so we we exchange contracts under auction conditions, which um basically means that once you exchange contracts, you have to buy it by the completion date, and the completion date for this one is tomorrow.

Dr Jassy:

And we were applying for bridging finance with a lender I won't name which lender it was, but before we went to him, we sent him photos internal, external gave him all the information. It's been rejected for planning in the past. This is the full situation of it. Are you happy to lend on this? They had the business development manager looked at it. They're like yep, this is something we'll take on. So we went through the process of applying for the bridging finance. They took longer than they should as well. So I asked for six weeks for completion. Normally it's four. On Monday or Tuesday they turned around and they said we're not going to lend. So me and my business partner were like what the we're supposed to be completing in like three, four days and you've just turned around and said you're not going to lend.

Dr James:

Like you know, what's going to happen? Come on, guys.

Dr Jassy:

Yeah, but like we've got a really good broker, he's kind of found like a, a private Bridger, um, who's looked at it and said they'll lend on it. Um, so we're, we've just got the application in for that now, um, and then we've asked for an extension from the seller solicitors. So basically we've got till next week now to complete. So we've week now to complete. So I've got the extra week, so hopefully we get it all done.

Dr James:

But, um, if we don't, then things get complicated. Just say those bills, yeah, you know what you know. If someone tells me if you can, if someone makes it out to you that run a business and doing all these things are easy, they're not man, you got the scars to show for it. If it was easy, everybody would be doing it. Come on hundred percent, yeah, hell, yeah, no, big time, man, big time. But then again, the flip side of that is the kind of the way I like to look at things. Uh, it was very hard to remind myself of this sometimes. Uh, when I'm going through something that's not easy or is really challenging me or pushing me, I like to remind myself I'm like James, you're learning lots of lessons that not a lot of people get the opportunity to learn, which will be able able to serve you later Because you can, because you learn these things, because you learned, maybe, not to work, collaborate with someone like that. Again, you know what I mean and it's 100%, 100%, it's a lesson.

Dr Jassy:

Yeah, as long as you learn from it, it's all good, but sometimes opportunities come from it as well. So, for example, obviously the original lender that we wanted to work with didn't give us the money, but now we've gone to someone who's who's potentially going to give us a bridge in two weeks on a commercial property. Um, the rates are a little bit higher, but you'd expect that, because they know that we're kind of desperate a little bit, um, but if they pull through, we've now got a lender that can act very, very quickly, which is really useful. So, you know, although it didn't go to plan, if this works out now, it was probably worth it. To be honest with you there.

Dr James:

You go Exactly, and actually that's an interesting thing that you just touched on. Then how does purchasing an HMO versus a buy to let shift around the finance side of things? Yeah, from what you've just said, yeah, so.

Dr Jassy:

So this is bridging finance. Bridging finance is basically short term. So you're going to buy money for 6, 12, 24 months um, and it's normally a high interest rate um. When you're purchasing a buy toto-let or HMO, you'll typically get it on a mortgage which is more long-term. It's going to be spread over like 25, 30 years. There are differences between your buy-to-let and HMO, so you need to make sure that when you speak to your broker, they know which one it is, because you don't want to get a normal mortgage and put it on a HMO or vice versa. It needs to be on the right project. And also, bridges are a lot quicker, or supposed to be a lot quicker, than a mortgage. A mortgage is going to take you like eight to 12 weeks of bridge. They should be able to do it in about four weeks.

Dr James:

Gotcha, and in addition to that, I guess I was curious as well. Let's say, somebody gets typical finance for a buy to let right and, from what my understanding, is the person who's doing the lending the creditor. Well, they have to know what's for a buy to let right, or else they get a bit funny about that.

Dr Jassy:

Yeah, of course they need to know. Yeah, Because they need to know what products.

Dr James:

And I'm just curious. So let's say, for example, in the example you were talking about, before you buy the property and you know you're gonna, it is a buy let, but you know you're going to turn it into an HMO. How does that work from the finance side of things? Do you just let them know beforehand and they can switch?

Dr Jassy:

it across, yeah, so in that case I would probably um, if, if it's an easy conversion, then I would buy on a HMO product to make sure that the lender knows most of the time they'll be okay with that. If it needs like a lot of work, um, then you might have to put it on a bridge first and then convert it over to HMO oh, and does the bridge work from the point of view that?

Dr James:

uh again, you know way more about property than me, but what I have heard people say before is, if you get, if you go into, if you have get, if you get a buy to let loan, they won't actually let you change the product for the first two years, or something along those lines. You're locked in for a certain amount of time. Have I got that right?

Dr Jassy:

I think that's when people buy a resi mortgage to live in and then they want to switch it over. Right, that's called a consent to let. Um, there are some lenders that do after six months actually, um, yeah, it's beat your broker, but um, yeah, don't do it too many times because then they'll be like hang on a second. This guy's like you're not allowed to do that. If it's like a legitimate reason that, oh look, my circumstances have changed and now I have to. Like you know, if your parents aren't willing, you have to go back. Um, something like that that's fair enough. But yeah, you have to have a legit reason and they could say no understood.

Dr James:

Do you think HMO is suitable for beginners in property?

Dr Jassy:

yeah, it depends on the person. I don't want to say yes, I don't say no, because it's quite individual. Like I, on my third project, I jumped into something quite big um, and I wouldn't recommend it to most people, but I did it and it worked. So, for for the right person, go for it. Um, it depends on your appetite for risk, how much money you're going to put into it, um, and how you are with stress, because HMOs are more stressful than single lets and your first one you're kind of jumping a little bit into the deep end, so it's going to be more stressful than if you went for something easy. I think for most people I'd probably say start with a flip, buy it, sell it, learn the process of it, see what it's like dealing with builders and whatnot, see if you like it, because if you don't like it, you.

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Dr. James Martin

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