Would you invest in HMOs?

Most investors know that HMOs can make superb investments. They give rental yields that can’t be achieved with standard buy-to-lets and in the right areas, the demand for affordable, flexible housing as offered by multi-let properties has never been higher.

It’s complicated

So before you invest in an HMO we strongly suggest talking to your local HMO Officer. This is someone employed by the local authorities to help landlords and developers stick to local regulations and their advice can be invaluable.

We also suggest that you read as widely around the subject as possible. When it comes to such subjects as licensing for HMOs there is a lot you should take time to learn and understand before you jump in with your wallet.

We want to look more broadly at the pros and cons of this kind of property investment so that, before you get bogged down in detail, you can be confident you are taking the right step.

And to that end, I will present the cases for and against investing in HMOs.

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The Case For (Investing in Houses In Multiple Occupation)
The clearest benefit of investing is HMOs is that they can provide much higher returns and cash-flow than most single lets.

Why HMOs Mean More Money

  • There are less (impactful) rental void periods. By this, I mean that if one tenant moves out, you still have other rooms tenanted. With a single let a void period will mean an empty property.
  • There is less exposure to arrears. With multiple tenants, you’re are less exposed if a tenant falls behind on their rent as there are still other tenants that are still paying. In a single let, arrears can mean the entire income on a property.
  • There can be tax advantages to investing in HMOs in that more of your costs might be tax-deductible.
  • Tenant demand for flexible, affordable housing is increasing. There is a trend in the UK (especially in cities and larger towns) where the average size of a typical ‘household’ is declining. At the same time, the overall population is increasing. This combination is leading to increased demand (in the right areas) for HMOs over and above single-room rentals.

If the case I’ve put forward for investing in HMOs has convinced you then that’s fantastic. In 2018 HMOs are still great investments that deserve consideration.
But, it’s important to go into this kind of investment with your eyes wide open. Houses in multiple occupation have their downsides too:

The Case Against (Investing in Houses In Multiple Occupation)

  • With HMOs there is more legislation and there are more planning requirements than there are with more straightforward buy to lets.
  • They can be harder to raise mortgages/finance for (especially for new landlords)
  • Not every property can work as an HMO, so the number of suitable properties in an area might be limited compared to single lets. If demand for these properties is greater than the supply then it is going to be very difficult to one at a decent discount.
  • Capital growth can sometimes be lower on these properties. This is because, when a property has been converted into a HMO, it’s resale market consists, almost exclusively of specialised landlords.
  • There are fewer letting agents that are willing to manage HMOs than there are who will manage standard buy to lets. This increases the chance that you might have to self-manage the property which can be very time-consuming.
  • A HMO has higher start up costs than a buy to let. There is more furniture that needs to be bought. There are environmental health regulations, fire regulations that need to be taken into consideration.
  • Finally there is the mortgage. A mortgage for an HMO is more difficult to get and a bigger deposit is most likely going to be required.

One recommendation we would give is to use a qualified letting agent to manage your HMO.
As a property investor, you want to be concentrating on building your portfolio and sourcing new deals, not on managing tenants in your multi-let houses.
To chat to one of our property investment experts about HMOs or any other types of Property Investment call 07876865187 or request a call back in 15 minutes here

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