HMO Investment Analysis

Executive Summary

This terraced property in Shepton Mallet is a prime candidate for conversion into a 4-bedroom professional HMO. With a purchase price of £239,950, it sits at a favorable price point relative to local rental demand for professionals working in nearby hubs like Shepton Mallet, Wells, and the commute to Bristol. By repurposing the dining room into a fourth bedroom and maintaining the living room as a compliant communal space, the project can deliver high-yield returns. The property is currently in a dated but habitable condition, allowing for immediate works to upgrade fire safety and finish standards to attract premium rents.

Acquisition Overview

Projected Rental Income (Post-Refurb)

Projected Cashflow & Returns

Mortgage & Financing

• Product: BTL / HMO Commercial-lite
• Deposit (40k): ~17% LTV provided for purchase
• Interest Rate: 1% (Assumed base + margin)
• Term: 5 Years
• Status: High feasibility for BRR model

Licensing & Compliance

• Mandatory Licence: No (Under 5 occupants).
• Additional/Selective Licence: Check with Somerset Council for any local discretionary HMO schemes (3+ sharers).

Strategy: 4-Bed professional HMO keeps the property below mandatory licensing thresholds while maximizing income. Fire safety (FD30s, interlinked detection) remains mandatory regardless of license status.

Property & Layout Analysis

Max Compliant Occupant Count: 4 Adults.

Refurbishment Plan

Phase 1: Fire & Compliance (Weeks 1-2)

• Install Interlinked Smoke/Heat Detectors - Cost: £800
• Install FD30 fire doors to all bedrooms & kitchen - Cost: £2500
• Thumb-turn locks on all bedroom doors - Cost: £300

Phase 2: Modernization (Weeks 3-6)

• Kitchen refit (new units, appliances, white goods) - Cost: £8000
• Bathroom upgrade (refurbish/shower pump) - Cost: £4000
• Painting, flooring, and general repairs - Cost: £6000
• Furnishing 4 rooms (beds, desks, wardrobes) - Cost: £4000

Total Estimated Refurbishment Cost: £35,000

Shopping List (Material Only Focus):

• FD30 Fire Doors (4 sets) - Cost: £1200
• Heat/Smoke Alarm System - Cost: £400
• Kitchen Units & Worktops - Cost: £3500
• Appliances (Oven, Hob, 2x Fridges, Freezer, WM, Tumble) - Cost: £2500
• Bathroom Suite (Shower pump, screen, vanity) - Cost: £1500
• Bedroom Furniture (4 sets) - Cost: £2000
• Paint & Sundries - Cost: £1000
• Flooring/Carpets - Cost: £2500

Risk Level

Risk Level: 35 (Low-Medium)

Primary risks include local HMO discretionary licensing (Council check required) and ensuring bedroom 4 (dining room) meets natural light/egress requirements. Property is otherwise standard and low complexity.

Negotiation Points

Investment Case Summary

Short Recommendation

Strong Buy-to-HMO conversion potential. Low risk, high yield, and prime for a 4-bed professional share in a location underserved by high-quality HMOs.

Detailed Recommendation

The property is fundamentally sound for conversion. By adding a bedroom in the ground floor dining room, you unlock a 33% increase in rental income vs a standard BTL. The Shepton Mallet market is experiencing demand from local workers and those commuting to Bristol/Wells. The £35k budget allows for a "High-Standard" finish, which is the key to commanding the £650+ pcm rent per room. This project is highly feasible for a first-time investor provided strict adherence to fire safety regulations.