HMOs: the benefits and factors to consider

 

HMOs are an increasingly appealing form of property investment for landlords with years of experience and those new to the sector.

A house in multiple occupation (HMO) is a property that is rented by at least three people who are from different households. The tenants share facilities, such as kitchens and bathrooms. There are a number of benefits of investing and factors to consider before investing. Here’s a guide to help you if you’re considering investing in your first HMO.

Benefits of investing in this housing provision

With buy-to-let investments, rental yields are an important consideration. Investing in a HMO often provides higher yields than a standard buy-to-let. Recent research from BVA BDRC shows the average rental yield for this type of property is 7.5%.

This is an impressive 1.5% above the overall average rental yield for property investments. The gap appears to be widening as well. Between Q1 of 2020 and Q1 of 2021, this difference has increased by 0.6%.

In addition to the potential for strong returns, multiple income streams are also another benefit for landlords investing in these homes. As the tenants are on separate tenancy agreements, these types of investment can lessen the impact of void periods and rent arrears. This reduces the risk of significant payment shortfalls, providing landlords with more peace of mind.

Factors to consider before investing

Investing in shared housing is more complicated than a standard buy-to-let. There is a growing number of legislation and regulations that landlords need to be aware of. For starters, a large HMO, which is rented by five or more people from more than one household, is required to have a license by all local councils in England and Wales. Licenses are a requirement for some HMOs with fewer tenants as well.

Currently, there are additional licensing schemes being brought forward to different local councils. Landlords need to check what the rules are in their area to ensure they remain compliant. You can reach out to your local council if you have any questions about multiple occupancy licensing and regulations. It is crucial that you keep up to date with the latest rules and regulations in place.

Additionally, this housing sector come with higher start up and operating costs. Furniture costs, along with utilities, maintenance and letting agent fees, which are more expensive for these properties, should be considered.

Sector slated for growth

In recent years, there has been an increasing number of buy-to-let landlords choosing to invest in alternative housing types. It’s not just landlords with years of experience investing in these kinds of properties. The potential for higher rental yields is attracting a number of first-time landlords entering the market as well.

With buy-to-let investors focusing more on rental yields due to recent tax changes, this housing sector is expected to become a more popular choice in the years to come. From a tenant point of view, shared occupany homes are seeing a revival in popularity. As the way people live changes, more young professionals want to live together in more affordable accommodation for longer.

Leading banking and wealth management company Arbuthnot Latham comments on the future of HMOs: “It would seem that the changing reputation of HMOs for renters, and the potential increased gains for investors mean that it’s a growing sector which looks set to develop further while there remains a shortfall of properties at affordable prices for first-time buyers.”

At BuyAssociation, we have a number of HMO property investment opportunities available across the UK. Get in touch for more information, or sign up for access to our best deals.

Highgrove Mews

High Net Yield Freehold Houses

  • Commutable to London (27 mins to central Paddington station)
  • Rental demand extremely strong with large industry presence in Reading
  • Freehold with 4% net yield

£284,955 - £457,000

St Petersgate – Stockport Manchester

New Launch - Stockport Manchester, apartments from £160,000

  • Discounted launch prices from £160,000
  • Excellent transport links with 3 trains per hour to London Euston and only 9 mins journey to Manchester Piccadilly
  • Experienced development team

Assured Rent Housing Association Leases

Assured Rent Housing Association Leases

  • Assured rent & no rental voids
  • Tenant damage cover & newly refurbished inline with requirements of a corporate sitting tenant
  • Free property and lettings management

From £62,000

Emerging Birmingham Commuter Town With Properties From Just £104,000

The emerging Birmingham commuter town where properties are selling in an average of just 24 days

  • A collection of 62 two bedroom apartments and 28 one bedroom apartments.
  • DE14 is one of the fastest selling postcodes in the West Midlands.
  • 23 minute train journey into Birmingham New Street Station.

Properties from £104,000

Mill, Stockport

The Northwest's emerging property hotspot

  • Discounted off-plan 2-bed prices from £162,000
  • Completion date - Q4 2021
  • Rental yields - 6% plus

Discounted off-plan 2-bed prices from £162,000

South Central – Birmingham City Centre Apartments

Highly anticipated 28 storey launch in Birmingham City Centre with an impressive roof garden and communal facilities.

  • 154 units across 28 storeys
  • Residential multi-media community room, gym, roof garden and sky cinema
  • Excellent future connectivity via the metro system to other key transport hubs and locations around the city

from £205,800

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HMOs: the benefits and factors to consider

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