House in Multiple Occupation properties, also referred to as HMO properties, are properties that are rented to ‘several tenants who are not members of the same family’.
If you’re looking to invest in the property sector, you might be curious to know whether HMOs are a good investment.
In short, yes, HMO properties are a great investment for a variety of reasons, such as the fact they produce higher yields, allowing landlords to maximise their rental income with one property.
Reasons why HMO properties are a good investment include, but are not limited to:
One of the main reasons why HMO properties are a great investment is that they produce higher rental yields.
In fact, when compared to standard buy-to-lets, HMOs can produce a ‘minimum of 12% gross yield, and on average a likely 15% realistic gross yield’.
This comes down to the fact that instead of charging a family under one tenancy agreement, with an HMO, you can charge multiple tenants on an individual basis to maximise your rental yield as a landlord.
For instance, say you let your 3-bed property to a family and charge £1500 per month in rent. With an HMO, you have the option to let those rooms on an individual basis and charge £700 per bedroom.
In turn, this would allow you to make £2100 per month, emphasising the higher rental yields you have the potential to make by investing in an HMO.
Another reason why HMO properties are worth investing in is that the potential to add rooms can increase both the rental income and add value to the property.
Many landlords decide to add rooms to HMO properties. These include extensions and garage conversions, to name just a few ways you can add additional space to your HMO.
By increasing the number of rooms in your HMO, then, you can increase the rental income as well as the value of your property in the long-term.
However, it’s important to highlight that there are rules for landlords regarding overcrowding, as well as minimum room sizes, that you will need to consider.
As such, you will need to carry out thorough research if you’re looking to increase the number of rooms in your HMO property to ensure you’re following the rules in your country.
As such, you will need to carefully consider this and do your research if you’re looking to increase the number of rooms in your HMO property.
That said, if you have the space, the potential of adding additional rooms to HMO properties makes them a great investment.
Another reason why HMO properties are a good investment is that there are generally less void periods to contend with.
A void period is essentially when your property is unoccupied for a period of time, meaning that it isn’t bringing in rental income.
For instance, when a tenant moves out of a standard buy-to-let property, a total void period can occur whilst you look for new tenants to move into the property.
Due to the fact that HMO properties are let to several tenants, landlords can therefore minimise the amount of total voids when compared to typical buy-to-let properties.
Bearing this in mind, then, one or two tenants could move out of your 5-bedroom HMO property, and you would still have 3 others paying rent during the period of time it takes to find new tenants.
Last, but definitely not least, HMO properties are an excellent investment in that the demand for rental properties isn’t slowing down.
In fact, the demand for rental homes is up by 23% in the UK, emphasising just how many people are in need of rental properties.
When you pair this with the fact that as of 2018, there were only around ‘497,000 HMOs in England and Wales’, the opportunity for landlords to capitalise on the demand for high quality HMOs is evident.
By investing in an HMO, then, you will be helping to meet the demand for rental properties.
Hopefully this article has provided you with a better understanding of whether HMO properties are a good investment opportunity for you.
If you are a landlord looking to invest in an HMO property or need help submitting an HMO licence application, you can get in touch to find out how we can help you.
Written by Jemima Thomas for Seraph Property Management.