Your Best HMO Deal Will Be The One You Don’t Do

In today’s episode, I’m breaking down one of the most important and often overlooked skills in property investing: knowing when to walk away from a deal.

Many investors know how to analyse a deal. They can model yields, cash flow, refinance projections, and ROI. But long-term portfolio performance isn’t determined by how many deals you do or how profitable they look on paper. It’s determined by the quality of the decisions you make before you buy.

A deal can show strong numbers and still weaken your position. It can look profitable while quietly increasing your risk, stretching your capacity, or relying on assumptions that simply aren’t robust enough.

In this episode, I walk through five clear reasons why the right decision might be to say no, even when the spreadsheet says yes. Because disciplined investors understand that avoiding the wrong deals is just as important as finding the right ones.

🎯 What You’ll Learn

• Why risk vs reward must be properly balanced before committing to a deal
• How optimistic assumptions can quietly undermine an otherwise “good” investment
• Why every deal needs a credible downside route and Plan B
• How overstretching your operational capacity can derail your business
• The danger of emotional decision-making and how it leads investors to defend bad deals

If you’re analysing a deal right now or feeling pressure to push ahead with one, this episode will help you step back, reassess the fundamentals, and make smarter long-term decisions for your portfolio.

💻 Resources & Mentions

• Join my Accelerator Programme: If you’d like my direct input on your current or next project, you can book a complimentary strategy call with me here.
• The HMO Roadmap: Feeling overwhelmed? Access 400+ tools, templates, and lessons to help you start, scale, and systemise your HMO business - all in one place. Join here.
• The HMO Community: Got questions or need support? Come and connect with 10,000+ investors inside our Free Facebook Group here.
• Social: Follow me on Instagram for daily HMO tips, advice, and behind-the-scenes updates here.

Transcript

Andy Graham (00:02.67)

Hey, I'm Andy and you're listening to the HMO Podcast. Over 10 years ago, I set myself the challenge of building my own property portfolio. And what began as a short-term investment plan soon became a long-term commitment to change the way young people live together. I've now built several successful businesses. I've raised millions of pounds of investment and I've managed thousands of tenants. Join me and some very special guests to discover the tips, tricks and hacks, the ups and the downs, the best practice and everything else you need to know to start, scale and systemise your very own HMO portfolio now.

Andy Graham (00:40.706)

What determines the long term performance of a HMO or property business? Is it how many deals we do? Is it the size of the deals we do? Or is it quite simply how much money we make from the deals that we do? Well, if you thought it was any of them, I'm afraid to say that you're wrong. Because quite simply, it's all about the quality of the decisions that we make before we even buy. And one of those decisions is whether or not we even buy in the first place. You see, a deal can show a great profit on the page, but it can still absolutely weaken our position. It can work numerically, but it can still absolutely be the wrong move for us in our business. 

In today's episode, I want to take a very close look when walking away is absolutely the right decision to make. This is one of the most difficult skills to master as a property investor, but unsurprisingly, it is also one of the most important. This could be one of the most valuable episodes I've ever recorded on the podcast and it could save you hundreds of thousands of pounds and years of heartache. Let's get into it.

Hey guys, it's Andy here. We're going to be getting back to the podcast in just a moment, but before we do, I want to tell you very quickly about the HMO roadmap. Now, if you're serious about replacing your income, or perhaps you've already got a HMO portfolio that you want to scale up, then the HMO roadmap really is your one-stop shop. Inside the roadmap, you'll find a full 60 lesson course delivered by me, teaching you how to find more deals, how to fund more deals and raise private finance, how to refurbish great properties, how to fill them with great tenants that stay for longer, and how to manage your properties and tenants for the future. 

We've also got guest workshops added every single month, we've got new videos added every single week about all sorts of topics, we've got downloadable resources, cheat sheets and swipe files to help you, we've got case studies from guests and community members who are doing incredible projects that you can learn from, and we've also built an application just for you that allows you to appraise and evaluate your deals, stack them side by side and track the key metrics that are most important to you.

Andy Graham (02:41.583)

To find out more, head to theHMOroadmap.co.uk now and come and join our incredible community of HMO property investors.

Andy Graham (02:55.931)

Welcome back. So today we are talking about deal disqualification. About when to say no to a deal, when to walk away. Most investors know how to analyze a deal. They can model the yield, the cash flow, the refinance position, the ROI, the return on capital employed, all of that jazz and a whole lot more. That part isn't complicated. What is much harder though and much more important is knowing when not to proceed. Because a deal doesn't have to lose money to reduce performance when we're talking about the long-term viability of your portfolio,  itjust needs to depend on optimistic assumptions. It just needs to offer average returns for significant complexity. It needs to leave no margin for error and it needs to stretch you operationally. 

So today I'm going to talk through five very clear reasons when you should be walking away from a deal, even if the numbers broadly stack. So let's start with the first. And I recorded a podcast about this only a couple of weeks ago. Risk and more specifically risk reward.

We all know how important risk reward is, but a higher risk isn't necessarily the issue here. Being poorly compensated for it is. In HMO terms, there are things that we should be looking for. Lots of planning sensitivity for a modest uplift, complex conversions for an average yield, tight refinance dependencies with very limited margins, and significant build risks for fairly ordinary returns.

I guess what I'm trying to say here is that we can do a deal and we can look at the numbers and the numbers can look really good and really strong. But at the same time, we have to look at what is off the spreadsheet to actually assess whether or not it's worth it. I mean, if you are doing a 200, 250,000 pound refurb, you better hope to hell that there is a very big and very obvious gain to be had from doing that. I would not do a refurb like that and all the planning that might be involved

For a marginal return, the cashflow might still be strong. The deal might still look good on paper, but personally for me, I'm not going to do it because I'm deploying my efforts in this sense in different projects, larger projects. So for example, I'm to do a deal with 10 times the return that might take me about the same time or maybe a little bit longer. I'm going to collate a lot more risk, but I'm also going to require much, much, much, much, much more in the form of a reward for it.

Andy Graham (05:22.832)

So what I just want to point out is that if you do lots of deals where you put lots of work and lots of effort and you take lots of risk and it takes lots of time and lots of resource, you do have to acknowledge that there are only so many deals of that caliber, that type that you can do over a certain amount of time. At some point, you have to question whether or not the risk and all of the efforts are worth the reward, even if the numbers look good on the spreadsheet, on a deal.

by deal basis. Hopefully I've made my point. It's a tricky one to try and explain and communicate, but hopefully you get the point. Look, it's just got to all be worth it, right? It is risk. It's also about efforts, but the reward has to be there. And you have to think about whether or not you can do that continuously and successively to achieve your longer term objectives from your portfolio and business. 

Okay. Let's move on then. The second thing I want to talk to you about today is your assumption model. This is where the fragility sits in your deals, right? This is where the warning signs are. If you're looking at a deal and the valuation that you're expecting is at the top end of the range, or the build costs are at the lower end of the range, or you're expecting the planning to happen on the more optimistic side of the time spectrum, then you're building a deal on very optimistic assumptions. 

Now, there's two signs to this point. First of all, if you're too pessimistic, you will always, and I would underscore that and highlight it in bold and then cover it in a highlighter, you will always be able to engineer yourself out of a deal. If you stress test too far, you will always get to a point where you just think, I can't do this deal, it's not going to work. You stress test to see what it might look like and how you might deal with it, but it's not necessarily what you buy based on. You buy based on the fact that you can hope that it lands somewhere between pessimistic and optimistic, right?

But you just have to be aware that if something terrible happened or didn't quite land, you could still deal with it. But you can't build every single deal on optimistic assumptions. And if you're looking at deals or you're stacking deals, you're buying deals every time based on optimistic assumptions, you will at some point fall flat on your face. Now those assumptions don't necessarily have to be the sorts of things that give you the performance results immediately. So for example, the refurb cost or the revaluation, what you

Andy Graham (07:46.244)

Can I get back and get out of the deal? It could actually be much more so about the long-term potential in this location. The kind of amenity provision around the house that you've bought. Is there an employment sector to support this deal for the next 5, 10, 15, 20 years? Are there other things happening that might make your product less competitive in the market? Are certain restrictions coming in that are going to make it difficult for you to do this subsequently. So you're going to have to up and move your business to somewhere else. Whatever it is, I'm just saying that if all of your assumptions about your deal are optimistic and you have to think well beyond just getting the deal refinanced, then you're going to find that your portfolio is very, very fragile. 

So please make sure that you are not making deals purely on optimistic assumptions because it will at some point come back around to bite you. Modest stress testing will change the outcome significantly if there isn't enough margin, but strong investors model conservatively first and then they work from there. If the deal only works when everything is going well, and that means over the mid to long term, then it is going to be vulnerable. And at some point, if you've got a handful of deals in that market, you are going to find it very, very, very difficult. 

So that's number two. If the deal only works based on very optimistic assumptions or data that you just can't demonstrate, I would say no, I would walk away, I would turn you back on it and go and find something else. 

Okay, number three. There has to be a credible downside route, right? So if things don't go to plan, can you hold it comfortably? This is kind of a step further to the previous point. But if it does go wrong, if it does pan out on the pessimistic side of your model, can you deal with it? Can you stomach it?

Is it going to be palatable or is it going to capitulate you in your business? If the risk is there that it could capitulate you in your business, whatever you do, do not do that deal. It's the wrong deal. You're taking too much risk on, you're biting off more than you can chew. It's one thing doing a deal and it not going well and being really disappointed with it, but it's still making a few quid. And it's another thing entirely. If a deal goes wrong, added implodes and you take an investor out with you and you blacklist yourself.

Andy Graham (10:05.572)

from some institutional lenders or maybe even worse, end up having to liquidate a company and go bankrupt. You know, that is just unthinkable. So you can't go into deals if there's no credible downside route. Now it isn't actually all just about the financial piece as well. A couple of weeks ago, when I talked about risk reward, I talked about regulatory risk and things like that. Well, that is definitely still pertinent here. Planning risk, for example.

If you go into a deal and it is contingent on you getting that eighth bed, but the planning is going to be contentious and there is a good chance, or you're not able to demonstrate otherwise that you might not get the eight rooms and the deal just simply is not going to work. It's going to fall flat on its face. If you can't make that happen, then that is definitely not the deal to do.

If you have no credible downside route, no plan B for whatever the circumstances your engineering are, then you have to walk away from the deal because you could potentially lose months, even years of your time, hundreds of thousands of pounds, you could damage relationships, all of the stuff that we want to avoid happening happens when there's no credible downside route. 

I think about this so much that I even like to buy HMOs that I know should they not be able to be used as HMOs anymore for whatever reason, let's say the student market just dried up completely or the campus moved or whatever, I would like to know that I could just sell my house to the open market because it's got parking and it's got a garden and it's got those other features that owner occupiers like. That is a plan B. That is a credible downside route. And you can see that I'm not necessarily buying because that's going to impact my results today. I'm buying with that in mind because I want to make sure that long term my business, my portfolio is successful. And sometimes that does mean thinking about the things that could go wrong and making sure that you could deal with it, you would have an alternative plan. So that's number three. Let's move on to number four. 

If you're doing a deal or deals that are stretching your operational capacity, your execution capacity time and time and time again, then the reality is at some point your business is going to break and you might break with it as well. Now these sorts of things you just have to be honest with yourself about. So for example, is the project going to need more oversight than you can realistically provide?

Andy Graham (12:28.29)

Are the deals that you're doing or the pace that you're trying to move? Do you have the systems and the processes and the operational infrastructure in place yet to allow all of that stuff to be stabilized and to operate successfully? It is very hard. And I see a lot of people trying to do this on the fly on the back foot and it's overlapping with projects underway and it's just a total disaster. It's the sort of problem that can take your business down. Contractor control.

Do you have it? Have you got control of your contractors? Have you got the right relationship, the right people, the right experience, the right paperwork? Are you doing lots of very complicated projects at once that are inherently more likely to throw up challenges and problems and delays and frustrations and cost more? If you stretch your executional capacity, your operational capacity too far, it could break you. Those deals, if you look at them singularly, could still be incredible

They could still be the best deals you've ever done on paper, but if the combination alongside whatever else you've got going on in life, it might be full-time job, it might be family, kids, might be health issues, it might be just more deals, it be holidays, whatever it is, if that pushes you too far and you go beyond the edge, it can become irrecoverable. You can lose lots of money, lots of time, lots of faith in the most important people that you rely on your lenders and it could stop you before you even get started. And this can happen at any point in business. So this is not something that is specific to new investors.

In fact, this tends to investors who have got a bit of experience under their belt, they're feeling confident, maybe overconfident. They take on too much. They bite off far more than they can chew. And they have a very hard time digesting that problem. And I'll be honest, I have been there and I have done that myself.

I managed to just get out the back of it, but my God, have I been grateful that I managed to just sort of figure it out. And it was embarrassing and I needed to call in loads of help and it kind of talk about a year of my life away as I just dealt with problem after problem after problem. So it's very real. It's very easy to happen and it's very difficult to get out of that situation once it's happened. So be mindful. Execution and operational capacity. If you overstretch yourself.

Andy Graham (14:50.903)

Probably not going to be able to build the successful business that you really want. 

And finally then, number five. This is a tough one and I get it. When we're looking for deals, we can often be waiting a long time. It can be very frustrating. It can be really disappointing losing deal after deal after deal. And that is the reality. We are going to get far more nos than we are yeses. You've just got to be prepared to keep swinging the bat in this game. That is the reality. But I get it and I am not immune.

It can get very emotional. You get so invested in the projects and the potential of projects and you, you've got other people that are bought into it and supporting you and cheering you on. And you don't want to let anybody down and you don't want to let yourself down and you don't want to go back to square one and start again and lose the three, four, five, six months you've been investing in this particular project. So irrespective of some of the problems that might crop up, finance problems, planning problems, survey problems, whatever it might be, you push on and you do the deal anyway. 

And it's just about the worst thing you could ever do. You start defending a deal more than questioning it. And I've seen this so many times. There's red flags, they become yellow flags and the yellow flags, they become green flags. You convince yourself that the issues are not really issues. You continue because you've just spent that money and you've spent that time and you don't want to lose that momentum. And you don't want to admit that the deal is marginal.

I have been there so many times myself, but if you buy deals emotionally like that, if you don't look at the data, if you don't look at the spreadsheet, if you don't look at the supporting evidence, you are being reckless. And if you buy recklessly, that deal will, whether it's in the short, mid or long term, at some point that deal will come back and bite you. And there's a very good chance it will take a big piece out of you and your business.

So my advice is whatever you do, don't buy deals emotionally. It should be as hard as it is, and I know it's difficult, completely void of any emotion. I've always said that the best deals are the deals that you're prepared to walk away from. What do I mean? Well, when you see something, you're interested in it, you want to buy it, the numbers look good. Put your offer in and

Andy Graham (17:09.647)

You have to be prepared to walk away. If they say no, you have to be prepared to just shrug shoulders and say, okay, fine. I don't really care. Would have been a good deal to do, but I'm happy to move on and find the next one. You have to be prepared to walk away from a deal. If you want to get a good deal, if you're not, you will overpay. You will overstretch yourself. You'll convince yourself of things that are not true. And it is one of the biggest mistakes that inexperienced investors ever make. And it can be catastrophic.

So there we go, those are the five key things. These are when we should be saying no, when we should be walking away from a deal. But let me recap for you. First and foremost, if the risk reward ratio is just off kilter, if you're going to be deploying too much risk and too much time, effort and resource for the potential returns, walk away from the deal. 

Secondly, if the deal only works on optimistic assumptions, walk away from the deal. Thirdly, if you don't have a credible downside route in place, either you can't engineer it in or you can't afford to, walk away from the deal. 

Number four, if doing the deal or deals will stretch you so much so that operationally and executionally you can't deliver, walk away from the deal. And finally, if the decision to buy the deal or buy deals is being driven by pure emotion, you have to be honest with yourself, but you have to stop, you have to walk away and you have to go back to the data.

Go back to the foundations of your business. So there we go guys. Look, I said earlier on that this is one of the most important skills that you must master as a property investor. If you don't, you will buy the wrong stuff. You will build an asset base that over the short, mid or long term, it will start to dissolve. It will start to deliver poor returns. It'll start to disappoint you and ultimately you'll regret it. You'll start to resent it. You'll have to make changes, go back, sell stuff, go back into properties, make other changes. You might have to figure out some long-term debt problems that you've carried forward, all of this stuff and more. 

So please, please, please be honest about this stuff when you're looking at deals. Never feel pressured into doing a deal. Certainly don't do a deal to impress anybody else. And if you need a little bit more time, if you need to keep searching, if you need to have more conversations, then please, please, please.

Andy Graham (19:33.199)

have the confidence to do that. There is always another bus just around the corner. I can promise you, after nearly 20 years of doing that, I have been disappointed so many more times than I care to remember, but there has always been something else that just comes around the corner and very quickly it's all forgotten about. So there we go guys, look, property performance. It does compound over time. We all understand the compound effect.

But it's the compound effect of these very disciplined decisions that matters more than anything. If you make the wrong decisions, you will find that those wrong decisions compound into big, big problems. So it's not about volume. It's not about how active you are. It's not just about momentum. It's not even about doing the most profitable deals that you can. It's just about buying. 

Well, it's about assessing all of your resources, all of your capabilities and delivering results at a sensible pace that mean you can go successfully from one deal to the next and continue to build a really solid foundation that grows and grows and grows and grows. One deal doesn't need to fail dramatically to hurt you. Okay. It can just be little bits that over a period of time, just start to erode the value and performance in your business. It just needs to consume a bit more capital or reduce a little bit of your flexibility. 

So make sure that you're not letting those issues creep into your business. If you're reviewing a deal right now, please stop, step back and assess it properly. Now, if you haven't already, come and check out thehmoroadmap.co.uk. It is the UK's biggest resource, over 400 tools, video lessons, case studies, master classes, downloadable templates, all waiting for you to help you build your property business and to do it confidently and to do it quickly and to do it efficiently and effectively. 

And if you need somebody by your side to do all this. And I get how difficult this can be. If you want someone there to sense check your deals, if you need somebody there to give you that expert opinion, that guidance, that insight that perhaps you don't feel like you have at the minute, then head to the show notes now. There's a link there to my accelerator programs. You can watch your video. You can find that a little bit more. And if you like, you can book a strategy call with me. We can sit down, we can have a chat about your business. I can give you some advice and I can tell you how and if.

Andy Graham (21:55.395)

I might be able to help you. It's completely free. So if you're serious about growing your property business, then please do go and have a look at that and feel free to book a call in. But I will stress it is for serious investors only. If you're one foot in and one foot out, it's not right for you. I'm not right for you. I like to work with committed people, people who are listening to the podcast, people who are ready to go, people who are confident, but know that they don't have all the answers and they just want somebody like me to help accelerate the results and do it safely. 

That's it for today's episode guys. Thank you for tuning in. I hope you've enjoyed it. I hope you found it valuable. Now, if you have, can I ask you a huge favor? Please, please, please just go and leave a really quick review of the show. can do it on Apple podcasts and on Spotify. And it means more than you could possibly know. It helps continue to spread the word about the podcast and reach more and more listeners. It helps us continue to bring great guests onto the show. And it does give me that really warm, fuzzy feeling and the team because there's a lot of work that happens to prepare and record and edit these podcast episodes for you guys. But I do appreciate your time so much, your support. 

350 episodes now, I still can't quite believe it. I do pinch myself regularly. But you guys have made it possible, so thank you so much. That's it guys, don't forget, I'll be right back here in the very same place next week. So please join me then for another installment of the HMO Podcast.