HMOs (house in multiple occupation or house of multiple occupancy) have long been a popular property investment strategy because of their high rental yields.
But are they still a good investment for income?
WHY HMOS WORK
You can still achieve enviable rental yields from HMOs because the demand for affordable housing is high and multi-lets provide this.
Income from HMOs is consistent and greater than single lets. Your rental yields are obviously much higher as you have multiple income streams coming in from the same property. Meanwhile, cashflow is more regular and consistent because any void times don’t impact as much as the loss of a single let.
With HMOs, you have rents coming in from all the rooms that are let out. So, if a single tenant moves out, the gap between a new one moving in won’t affect you as much because the other rooms are still filled.
The same goes for arrears. If one tenant falls behind, you’re still covered by the other tenants who are paying on time. Whereas, if you just have a single let, your whole income from that property is gone when it’s empty.
More of your costs can also be tax-deductible on an HMO, giving you tax breaks in certain areas.
CONSIDERATIONS BEFORE INVESTING IN AN HMO
Of course, by their nature, HMOs attract more legislation as it’s a house of multiple occupancy. Therefore, there are more safety, fire and environmental regulations to be taken into consideration. Also, local authorities can have differing licensing requirements.
An HMO can attract more start-up costs, if the house needs to be adapted for multiple occupancy. Planning regulations around this will need to be investigated. You’ll also need to invest in suitable furniture throughout.
You may find there’s a reduced selection of mortgages to choose from, compared to a single buy-to-let. Plus, a larger deposit may also be needed.
When it comes to managing the property, there are fewer letting agents to choose from compared to standard lets. This is something you may decide to do yourself; however, it is more time-consuming to manage an HMO as you have multiple contracts.
And while rental yields are high, capital growth can be lower on this type of property if it’s been converted purely to operate as an HMO. The resale market may be more limited, though you could sell to another landlord.
HOW TO MAKE AN HMO WORK
Location and property type are the two factors in making an HMO work.
First, it needs to be in an area where there’s plenty of demand for shared accommodation for whatever reason. The most common reason is a large student population in a university city.
Next, the property needs to have enough rooms and sufficient living space. Shared kitchens and bathrooms need to be spacious enough to cope with a large household. There should also be a living area that can be shared comfortably by all tenants.
WOULD YOU LIKE TO LEARN MORE ABOUT PROPERTY INVESTMENT?
We’ve recently launched two brand new online property investment courses:
HOUSE OF MULTIPLE OCCUPANCY MASTERCLASS – LIVE RECORDING
This will give you a better understanding of one of the most popular and financially rewarding property strategies in the UK.
PROPERTY INVESTING MASTERCLASS – AN INTRODUCTION TO PROPERTY INVESTING
This course will provide you with an introduction to property investment, whether you’re new, intermediate or experienced.
Plus, we’re delighted to introduce PMA Property Mentor Elite Online & Personal to motivate, inspire and challenge you to achieve your personal and business goals.
All of our mentors are experienced industry professionals with years of experience AND are all active investors.
Email firstname.lastname@example.org or phone 01252 730040 to be the first to take advantage of this brand new online mentoring service.
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