Opting for a house in multiple occupation (HMO) can bring in better yields for landlords than traditional lets, and many are factoring this into their future plans.
A landlord survey by Precise Mortgages has revealed that over a fifth of today’s landlords are seeking to add an HMO to their property portfolio. According to the data, only 8% of HMO landlords are planning to sell, compared to 40% of landlords planning to offload terraced properties from their portfolios.
HMO properties have become more lucrative than standard single let rental properties, particularly in UK cities with a significant student and young professional population. Many landlords have been hit by the tax changes of the past few years including the 3% stamp duty surcharge and Section 24 tax relief changes, so it’s no surprise that landlords are attracted to HMOs, where the average rental yield for April-June this year was 6.3%, as opposed to the market average of 5.5%.
“HMOs are an attractive option for professional landlords looking to maximise yields at a time of market uncertainty,” said Alan Cleary, managing director of Precise Mortgages. “The expansion of the HMO sector underlines how experienced landlords are rebalancing their portfolios.”
The expanding HMO sector is evidence that landlords are rebalancing their portfolios. Not only can a well-managed HMO property deliver better yields, but it also comes with less risk, as multiple tenants mean less of a financial impact if one decides to leave.
Getting the most out of an HMO
The highest average yields among landlords was reported in the north-west at 5.9%, with cities such as Manchester, Liverpool, Preston and Bolton offering great returns at relatively lower price points than the pricier south of the country.
While they can be slightly more complicated to run, with licensing requirements and minimum room sizes being brought in in recent years, they can be a great option in university towns and other student heavy areas as young professionals and graduates continue to opt for shared houses as a way of saving money while living in their first choice of area.
To read more about the pros and cons of HMOs, as well as additional factors to bear in mind when investing in one, read our guide.