Why Most Investors Waste Their First £50k (And What I’d Do Instead)

A lot of aspiring investors spend months (even years!) stuck in research mode.

They’ll read the books, listen to the podcasts, maybe even save up a decent chunk of capital… but still hold back from making that first move.

And more often than not, the reason isn’t money, or lack of deals, or some missing strategy.

It’s a story they’ve been told (or told themselves) about what’s possible.

That HMOs are too complicated. That the market is saturated. That they need to buy a buy-to-let first. Or have six figures in the bank. Or a decade of experience under their belt.

In this episode, I’m breaking down seven of the biggest myths that hold people back from ever getting started - and sharing why they’re almost always wrong.

If you’ve been sitting on the sidelines, this might be the episode that helps you take that first step.

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Transcript

SPEAKER_00: 1:37

Almost since day one of starting this podcast, I have tried to share whatever advice I can that I feel is relevant and helpful to you as a property investor. And I think that goes a long way. I take a lot of advice from different places on what works, I can put into action in my property business and in other businesses. And I think I see the results results of that, both for myself and for you and the students that we've worked with over the years. But maybe what I haven't focused on enough isn't so much the things that will help you when you start taking action, but the things that are in your head that are stopping you from getting started in the not so much new investors, but aspiring investors who haven't got started yet and keep getting in their own way. Sometimes for months, sometimes for years, I have these conversations with people via email, social media. I see them at events. And before... They get their first deal if they ever get around to getting their first deal. It's the same worries and concerns and objections that they're telling themselves that are holding them back from getting started time and time again. And I think it is all virtually mindset. There's nothing true about any of those common themes that come up. So today, that's what I wanted to dive into. I want to break down seven of those big recurring myths, misconceptions, whatever you want to call them, that stop people from ever getting started. And if these are things that you are telling yourself... then I hope today this podcast can be the catalyst you need to give yourself the permission to actually get started. Because everyone who has been on this podcast as a success story, as a guest in the past, was told or believed some or all of these same myths and misconceptions at some point in time, but it was by processing and overcoming them that they were able to take that leap to do their first deal, to get started, to build a portfolio, to create financial freedom that got them into the position where they could come on the podcast and say, yeah, we did it. So if I can do that, if I can persuade or convince or change the mind of one of you today that one of these lies that you are telling yourself or you have been told over the years is incorrect and it allows you to move forward, then I'll call this episode a success. Now, the first one, and I'm talking mainly about HMOs here, but most of these are going to be broadly relevant to any strategy, any investor looking to get started. But my world is HMOs. My belief is that HMOs are overall, ultimately, the best investment strategy. So the first one that I hear time and time again is that HMOs are too complicated for beginners. And for me, this is the biggest fallacy. Yes, there is no denying they're going to be slightly more complicated than a single let, a buy to let. But they're not rocket science. If you're considering buying... a buy to let. You're already accomplished in a lot of ways. You have got the capital needed to do it. And that doesn't come easily. You've probably got a career behind you. There's a lot going on that needs to happen to get to a position where you can go out and buy an investment property in the first place. And if you can get yourself to that position, then the 10, 20% of additional complexity of an HMO is by no means a big enough hurdle to stop you jumping straight into a better investment strategy than hamstringing yourself by doing a buy to let first. You're more than capable of learning HMO investing. So I'm not saying they're not more complicated, but I'm saying you are smart enough to figure it out. I think that it's almost like an ego trip for the people who say, oh, you know, HMOs aren't a beginner strategy. They're too complex, blah, blah, blah. Just say, well, I can do them. I'm qualified. I've invested in buy-to-lets before. It's nonsense. You're a smart person. You're thinking about investing. You're thinking about building wealth for the future. You've been able to acquire capital in a significant sum. You're smart enough to figure out the few additional requirements for an HMO. And doing a buy to let first, in my opinion, it's going to limit your future growth. It's going to tie up a chunk of your capital. We do not have unlimited capital to go out and invest. And you do abide to that first to gain experience. And that ties up half your capital. And all of a sudden, you don't have enough to do an HMO for your second project. Or you get to the end of your capital pot and you're thinking, oh, well, I've got one single that brings me in£200 a month and an HMO that brings me in£1,000. So I've got£1,200 a month income where I could have had two grand income. That's a big difference. Why limit yourself and your potential income by listening to these people who don't think you're smart enough, good enough, capable enough of doing an HMO? You're underestimating your own ability if you think it is beyond you and starting with an HMO gives you that highest ROI from day one. So my view, if you're smart enough to buy a buy to let, you're smart enough to buy an HMO. Myth number two is that you can't get mortgage finance without previous experience. So even if you think, oh yeah, I'm sure I can figure out those additional complexities, the licensing requirements, I need to understand permitted development to go from C3 to C4, I can do all of that. But I keep hearing that you can't get mortgage finance without experience. This has not been the case for five or 10 years, at least. It still gets repeated all the time. in online forums and at networking meetings. I hear it on repeat and I just... I kind of cringe and roll my eyes. And it's not worth having the argument with these people who genuinely believe it. They're typically people who haven't done it themselves or they don't know what it's like to be a new investor buying an HMO as your first property in 2025. Again, I think it's partial ego and it's partially just being detached and removed from the current market. But you can go and Google the likes of Kent Reliance or West One. These are more mortgage lenders who will lend to first-time inexperienced investors on HMOs. You can go onto the Counter Alliance website and you will see there in black and white, you do not need any previous investment experience to qualify for this HMO product. I'll maybe put a link to it on the show notes if you want to go and prove it yourself, but it's It's there. There are products that exist. And yes, there are some limitations. So two things that you will probably notice. One, the lenders that do exist for inexperienced investors will likely have some criteria in place that they will cap it at maybe five or six occupants. So you're looking at a small HMO rather than a sui generis HMO. C4 use class. I mean, that's into details, but you're probably going to be looking at a four or five or six occupant HMO as your first project anyway, but you can't go in, you'd be unlikely to get finance as a first time investor on a 10 bedroom commercial to HMO conversion. But for those smaller HMOs, there are multiple options. And the other caveat is that you won't have access to the full market. You won't have access to all lenders, all products, because not all of them will be available. Not every lender is going to be happy to lend to inexperienced investors. But that doesn't mean that no products exist. We work with new investors who haven't done any buy-to-lets that are going into their first HMO, and they all get mortgage finance because there are products that exist that they all qualify for. So it's not opinion. It's not my view. It's fact. And anyone who tells you otherwise is misinformed and not to be trusted. So my kind of opinion on this as well as it backs up what I was saying about myth one, if risk averse banks and banks are some of the most risk averse people out there, if they're happy to lend money to you as an inexperienced investor, for me, that's just more proof that you're absolutely capable of doing an HMO as your first deal. It's not the market that is closed to you in this case. It's the misinformation that's keeping you locked out. So like I say, it's not opinion, it's fact. Myth number three, the market is saturated. It's too late to start investing in HMOs. I've missed the boat. There's not enough demand or supply is too high. Now to that, I would say that yes, absolutely, supply has increased. over the years, the number of HMOs in the market has steadily risen. But what we also see, this isn't just a one-sided argument, demand has increased at a faster rate. So as the number of HMO rooms has increased, the demand for those rooms is increasing at a faster pace. It's basic economics at play, which keeps the market buoyant. If you look at spare room statistics. So spare room is the biggest advertising portal for HMO rooms in the UK. They release their landlord report on a quarterly basis. And for years, basically, at least since COVID, as far as I can remember, we have seen 5%, 6%, 7% year-on-year growth in rents across the UK, which would imply that demand, there is more demand than there is supply. If prices continue to go up, it's because there is more demand than there is supply. Now, this year, it's stabilized a little bit. I think it's around about 1% year-on-year for Q3 2025 versus Q3 2024. But it's still been an increase. It's still been a 1% increase year on year. So yes, it's stabilizing, but it's far from collapsing. Plenty of landlords are exiting. They're retiring. They're selling up due to some of the tax changes. Maybe they own them in their personal name rather than a limited company because they've owned them for years and it's not tax efficient to do that anymore. A lot of people, you know, they're selling to move on to bigger projects or they're leaving the UK, which is leaving space for newer investors to come in and fill those gaps. So I think it's partially kind of, you know, blue car syndrome confirmation bias. You go on Instagram or YouTube or you listen to podcasts because you're interested in investing in HMOs. And then all of a sudden, everywhere you turn, everyone is talking about investing in HMOs. And you think, geez, everyone is doing this. But that's not the case. Like I say, the stats prove otherwise. en masse with the likes of SpareRoom and also anecdotally across the UK where we work with investors, rooms are renting quickly. The right product at the right place, the right price, tenants are moving in. There's plenty of demand. So you're far from missing the boat. And I think demand is only going to continue to increase in a lot of ways from a desire point of view. HMOs are a great, convenient, affordable way to live. And unfortunately, in some ways out of necessity as well. But that demand, whether it's desire driven or necessity driven, it's not going anywhere. It's like thinking you missed the Amazon boom because there's already too many shops on the high street. Can you imagine if Bezos was like, I'm not going to sell books because bookshops already exist. Like there is scope for the right product to come in and fit into the market. Myth number four, HMOs are hard to manage or they're full of tenant drama or I'm going to have to be on call 24 hours a day and that's not what I want. And the first thing I'd say is you don't have to manage it yourself. We self-manage. I prefer it that way. It gives us more control. It's allowed us to effectively keep that money in the company rather than paying over to a letting agency. But the vast majority of people won't self-manage. And That takes away 90% of the burden. Sure, you still need to keep an eye on your letting agents. And, you know, it's kind of the irony is that you hire a managing agent and then you need to manage the managing agent. But that's 10% of the work versus 90% of the work. And it's Monday to Friday and it's nine to five. And it's not, you know, they're dealing with all the out of hour stuff. They're dealing with all the maintenance, all the petty disputes, all that sort of stuff. Now, let's be real. Poorly managed properties. If you create a shitty house, you're going to have shitty problems. If you don't manage the property well, if you don't create a property, a project that is well renovated, that the standards are high, you're going to have more maintenance issues. You're going to attract worse tenants. But that's across the board. That's not specific to HMOs. It's not specific to property investing. You can create a good product and have happy customers, or you can create a bad product and create problems for yourself. Now, it doesn't mean you don't get any problems. I'm not sitting here saying we never have any issues with our HMOs. But the issues are few and far between. They are usually pretty minor. And When the worst case scenario happens, the reality is, is HMO tenants tend to be more transient than people who are renting a whole house or an apartment from you. If they rent the house off you, it's their family home. That's how they see it. This is my home. I rent it from a landlord, but this is where I live. It's got all of my stuff in it. And you'll be damned if you think I'm going to move out. Somebody in an HMO, it is, as I said earlier, it's more convenient, but it's also more transient. It's easy come, easy go. It's usually furnished, usually all bills inclusive. So it's easy for them to move in. It's easy for them to move out. They feel less ownership of a room in an HMO as they would do over an entire house that they're renting. We've had it in the past, a few problem tenants, and ultimately you have a conversation with them. Maybe there's a bit of a cash incentive and you say, we'll pay your deposit for the next place or something, they go. We've never had a major issue in our years, decades plus of running our own HMOs and managing them for other people that I thought, oh God. That made me think twice about doing HMOs again. We've certainly had more issues with single let tenants because like I say, they see it as their house and it is their home for sure. But if they start causing problems, they're a lot more reluctant to leave. The other thing as well is if you have a single let, and that one tenant stops paying the rent, your income drops 100%. You make zero money. If you've got five tenants in an HMO and one of them stops paying rent, you've still got 80% of your income coming in. One late payment doesn't kill your income with an HMO, whereas with a buy to let, it absolutely does. So for me, it's not more hassle. It's about having the right systems in place, creating the right products, attracting the right tenants and having the right support behind you, which for most of us will be a third party managing agent that take care of 90% of the problems. A well-run HMO is a heck of a lot easier to manage than a badly run, badly invested buy to let. The key is all in the setup. Now, myth number five. HMOs are slummy. They're only for DSS or housing benefits or students. You think of the young ones, whether it was the 70s or the 80s, these really kind of grotty falling apart houses with the bad tenants that treat the property as if it's a party house. That's not the environment we work in. It's not the environment that we invest in. Most students, most professionals, which are the areas that we focus on personally from a professional point of view, but a lot of the investors we work with invest in the student market, they want well-designed, comfortable homes. design-led HMOs, well-renovated HMOs, energy-efficient HMOs, all command higher rents, better tenants. There's virtually no reason not to create a nice place for people to live. And by doing that, you can be proud of the homes that you create. I'm sure you've seen examples of them on Instagram or in magazines, or you've heard the stories on podcasts. But I mean, the the standard of HMOs that are being created these days are phenomenal. They're stunning places to live. So you can be proud of the homes, the products that you create, and make a lot of money from it at the same time. Those two things don't oppose each other. They live in sync with each other. You invest in HMOs, you create nice places to live, and at the end of the month, you make a healthy profit from it as well. There is nothing slummy about HMOs unless you act like a slum landlord. That's a choice, but it's not one that I see many people in our environment, in our community making. You see the likes of Philippa Charrier, if I can name drop, who... is doing phenomenal things in this space, creating... I realize the way that I led into that there. Phillip was maybe holding her breath thinking, is Michael calling me a slummy landlord? Absolutely the opposite. Like what she is doing in the industry with student HMOs to inspire... and kind of activate student housing for a means of improving their mental wellbeing and health whilst they are in their times at university is just phenomenal. That is somebody, and I don't think the chairs would mind me saying this, they're running a profitable business, but they're having a massive impact as well. And their tenants love it. It's so far from that worldview of HMOs being bad for the neighborhood, bad for the community, a low quality place to live. And I love that. I love the fact that, like I say, we can create something that has a positive impact on the housing market and we can make money from it at the same time. Myth number six, you need a lot of money. to get started. I hear people saying, oh, you need 100 grand plus, 200 grand to get started with HMOs. Now, I am not talking about rent to rent here. I'm not going to say that it's no money down. I'm not going to sell you these dreams that, you know... Rent to rent, it's a feasible, viable strategy. Go and check out Katrina Jones if you want to understand more about rent to rent and have very limited money to work with. But for me, for the approach that we take to buy and own assets for the long term, you absolutely do need capital, but you don't need six figures. I usually say around 50 grand can be enough, depending on the area, the deal type, and the strategy that you're going after. You got to keep in mind that Whatever capital you've got, it's a 25% deposit payment on the property you're buying. If you're buying a 200 grand property, that's your 50K gone already. You've then got to think about stamp duty, legals, renovations. So 50 grand isn't going to buy you the biggest HMO in the world, but it can absolutely be enough to get started. We've shared examples on the podcast in the past. We've had examples within our community in the past. We have an example, one that I think is often overlooked. as a flat. It was a three bedroom apartment converted into a four bedroom HMO. People often dismiss apartments as good options for HMOs, but they can be great. This was, I think about a 200 grand purchase price outskirts of London. Four students moved in there in the September and it's just, you know, the ROI on it was, was phenomenal. Uh, opposite end of the country, you head up to Newcastle. One of our students, Ben bought a terraced house, um, in Gateshead for£100,000 and I went up there last year to visit that and again great place for people to live predominantly student nurses at a local hospital another contact of ours that invests in the outskirts of London again and I've used London twice here or the outskirts of London at least because that's where a lot of people it's the most expensive part of the UK so if it works there it can work anywhere but a six bedroom HMO you probably heard Adam Hexter on the podcast recently the first HMO that he bought outskirts of London 250 grand for a three bedroom terraced house that's not a huge sum of money that you need to get started with a project like that and I often think more and more these days that simpler projects are actually often better so don't overlook flats don't overlook smaller simpler projects that are going to be up and running and profitable quickly so it's not about how much money you have if you've got 50 grand as a minimum it's more about what you do with it And then the final one that I suppose is possibly more of a current concern or maybe one that I just am more aware of, again, with that confirmation bias of, you know, although being back in the UK, having spent a lot of time away and looking to potentially leave again. I hear people saying, you know, I love the idea of investing in property, but we're thinking about moving to Dubai or we want to spend six months of the year traveling. It's not the lifestyle that I want properties to tying. And in some ways, I do agree with this one to an extent, but on the whole, I'd say this is exactly why HMOs can work if you are looking to create more freedom, more income. Previously with single lets, with buy to lets, you know, you think 200, maybe 300 pounds a month. And yeah, there'll be people saying, oh, well, I've got a buy to let that makes me 500 pounds a month. Sure. But on average across the UK, the average is probably about 200 pounds a month profit. And a lot of them, it's less than that. With HMOs, 800 to 1,000 pounds a month for a small HMO, or I say small HMO, I mean like five, six bedroom, a kind of typical entry-level HMO, you get significantly more income from fewer properties. Fewer properties means more freedom. You can have the exact same number of assets in your portfolio. And yes, you've got a few more tenants, but we've spoken about the management thing already. and not need to be buying dozens of properties to hit the income level that you want. Because yes, you've got more tenants per house, but each house is still only one time sourcing that deal, one time going through conveyancing and applying for a mortgage, one time going through the renovations. So if you can get the income that you need from four or five houses versus 10 or 15 or 20 buy-to-lets, it's a lot more scalable. It's a lot more sustainable to operate that from afar with systems in place. We built our portfolio predominantly around HMOs, and then we went sailing around the world, around the Med at least for four years. We planned to sail around the world, but COVID and all that stuff. It's weird that five years later, COVID has still got two mentions in this episode. There we go. That's the reality of it. We went sailing. We were out of the UK nine months of the year whilst running and building our portfolio. And it worked perfectly well. Joe, the co-host of the IPI Mastermind, he's recently moved to Spain. He's just completed his first HMO. He's been investing in service accommodation for years, but just done his first HMO. And he was living in Spain for the entirety of that time. He used builders that he trusted and he had contacts back in the UK, but he invested remotely. You've got Tash. You maybe heard her case study last week about her HMO story and her recent HMO on Derby whilst they're living in Liverpool. It's not necessarily as exotic as investing from Spain, but it's still two hours away from where they live and it works. You don't need to be painting walls yourself. You don't need to be managing check-ins. You can create a property business that you run and as an owner, as the strategic vision and direction of that business rather than the maintenance person. And that's the way you should be doing it. Done right, this is a strategy that gives you choice. If the strategy is causing you stress, the reality is the strategy isn't the problem, the setup is. The way that you are running that business can be changed and should be changed so that it's not causing you problems, so that it's not tying you to a specific location. So that's it. My top seven myths and misconceptions, hopefully busted for you and giving you a bit more confidence that getting started in property is the right decision for you and is something that you can absolutely do. We spoke about the fact that HMOs aren't too complicated for beginners and actually they're the perfect strategy, if you ask me, they're where you should be starting. We spoke about the fact that there are plenty of mortgage options available for first-time inexperienced landlords to get HMO finance. We spoke about market saturation and the continuing demand outpacing the increase in supply. We spoke about the myth that HMOs are hard to manage and full of tenant drama. And the reality is with hundreds of HMOs managed under our belt over the last decade, we haven't had any major issues to report. And we find in a lot of ways, actually, you know, the issues that do come up with single lets are a lot worse than the issues that you get in HMOs. We spoke about the high standard of HMOs that we see as the best route to go down and why slummy HMOs aren't the property type that you want to be focusing on. It's not where the demand is and it's not where you should be choosing to spend your time. We spoke about the capital that you need to get started and not needing to be a six-figure sum and oftentimes the smaller, simpler HMOs being a better, easier, quicker route to cash flow anyway and we spoke about the reality that hmos can be run from anywhere and even if you are investing on your doorstep you should be thinking about it as a business from day one it shouldn't be something that you are tied to 40 hours a week to build a portfolio you can do some of that in the early days to save costs absolutely do the strip out yourself paint the walls if that's where you want to spend your time and that's what's going to help you grow sure do it a lot of us have been there and done it but it's not how you want to grow your business long term. And it's not how you need to grow your business long term. So if you've been on the fence for any length of time, whether it's months or years, I hope this has given you some confidence that HMOs aren't some big, scary beast. They're just a slightly more advanced version of what you were already possibly thinking about doing. And in virtually every way I can think of, a better option as well. So Yeah, I hope you enjoyed that episode and I'll speak to you soon.