Many property investors already know that HMOs can make excellent investments. Their higher occupancy levels generally give better rental yields than standard buy-to-lets and in many areas of the country, particularly where there is a larger transient population such as students, there is a strong demand and hence a ready supply of tenants.
Of course every investment must be viewed carefully and sometimes they are not right for every investor. In this article we’re going to outline the main pros and cons as we see them.
Defining an HMO
Firstly to be sure we are all talking about the same thing – HMO for our purposes is defined as a House in Multiple Occupation, you can find the official Government definition of it by following this link to their website – GOV.UK definition of House in Multiple Occupation
So What is an HMO Actually?
If you are still not sure then Salford council have created a useful flow chart that helps you decide if a property is or isn’t an HMO – follow this link to take a look at their HMO Definition PDF
Typically we are talking about properties that have 3 or more occupants, who are not part of the same family and who have some element of shared facilities such as bathrooms and kitchens. If they are all in separate self-contained units then they are not in an HMO, they are just in a block of flats for example.
Over time the definition is coming to mean the same thing all over the UK but it is always worth talking to your local council’s Housing Department so you are completely clear about the local rules and can apply them to your investment.
Currently not all HMOs require a license but certainly larger ones will. This wont necessarily be a hindrance to your investment but it is reasonable to say that before you invest in HMO properties you should have a good grasp of what they are and what rules apply.
So as we are HMO Investment Specialists, here’s our view of the main Pros and Cons for HMOs
Pros for HMO Property Investments
- Our HMO investments regularly return net cash yields up to 13% (rental and capital growth). This is a much better return than most regular buy-to-let properties.
- Tenants are often easier to find and you won’t lose out as much if one falls behind in their rent as others will still be paying.
- Demand for this type of housing is strong and in many areas increasing as it flexible and often suitable for young professionals.
- There can be tax advantages when setting up and operating an HMO.
Cons for HMO Property Investments
- There are more regulations around HMOs than properties let to single families. Typically these are around the quantity of things like shared facilities. In fact we have a breakdown of these on our Lettings agency website so you can see what we mean.
- The right property must be selected as not all houses can be converted cost effectively. This is where specialist Estate Agencies such as Mistoria can assist you.
- Mortgages may be more difficult to come by and you will generally require a larger deposit so these investments tend to suit investors with more cash available.
- You will need a specialist letting agent to manage the property for you as they will have the resources to deal with the higher levels of paperwork involved in managing the individual tenants.
Although HMOs do have a few more rules and regulations, their returns are likely to be higher so justify the extra effort to create your investment portfolio. Using specialist letting agents will allow you to cope with the extra work. Our speciality is in creating portfolios based on HMO properties targeted at students and professionals. We have been successfully doing this for the last decade and now manage over 1300 tenants across the North West.