Boasting irresistibly high rental yields and wonderfully low rental void periods, it’s no wonder that property investors and landlords alike are increasingly searching for HMO (house in multiple occupation) opportunities in the UK.
To find out whether investing in a HMO to meet the increasing market demands is worth it, we take a look at the rental yields you can expect to achieve from this type of property and how much you can expect to spend on running a HMO.
How profitable are HMOs?
If you’re eager to purchase a HMO property for renting to tenants, then you’ll need to consider the expected rental yield as well as the running costs to determine whether it’s a financially viable option. Below, we explore whether HMOs are as profitable as they sound.
Significant rental yields
Unlike standard buy-to-let (BTL) properties that are rented out to a single household, HMOs are rented per room, allowing the landlord to charge a higher overall rent. For example, a typical three-bedroom property might be rented for £1,000 a month for a small family. Converted into a HMO and let to three single professionals, that same property could receive a total monthly income of £1,500 (£500 per room/tenant).
According to Forbes, a good return on your investment (ROI) on a rental property is typically above 10%, but slightly lower figures – between 5 and 10% – are also considered acceptable.
However, what does this figure look like for HMOs? Well, the average rental yield for a HMO, according to research completed by the BVA BDRC, is 7.5% – sitting comfortably in the middle of this acceptable ROI range.
If you buy a HMO or convert a property into a HMO in the right area, you could benefit from an even more impressive yield. This is where researching local demand, as well as the overall demand for HMOs in the UK, can help you to find the perfect HMO opportunity. Luckily, this sector has continued to grow over the past decade and there are no signs this substantial growth will come to an end anytime soon.
Additionally, with the combination of rising energy prices and the soaring cost of living, the demand for HMOs is expected to continue to rise (especially in big cities) as single professionals search for more affordable housing. Now you know what kind of a rental yield you can expect to achieve from your HMO property investment, you need to work out the running costs.
HMO running costs
In terms of running costs like letting agency fees, mortgage payments and sourcing tenants, HMOs are known for being more expensive than non-HMO properties. According to the intermediary only lender, Foundation Home Loans, landlords of HMO properties are spending 30% of their gross rental income on running and maintaining them – a considerable 7% more than landlords that let standard BTL properties.
While these running costs may seem substantial, the potential rental yields can make these higher costs more than worth it if you decide to invest in a well-situated HMO. The best way to determine whether the significant running costs are justified is to therefore calculate the amount of rent you can get for a HMO.
Ultimately, the monthly rent you can charge for a HMO will depend on several factors including the quality of the finish, the location, facilities and space (the number of tenants your HMO can safely and legally accommodate). For accurate HMO advice and guidance in your area of interest, it’s always best to turn to the professionals.
Mistoria Group – HMO property investment company
Offering an extensive selection of both secure and high-yielding HMO investments in the North West, the professional team at Mistoria Group has the experience and local expertise to help you make only the best property investment decisions. Comprised of a range of bespoke companies, we can take care of everything – from property sourcing to taxation!
At Mistoria Group, we provide an impressive variety of property investment services for you to explore. Searching for a hands-off, yet profitable project? Choose hassle-free armchair investment. Alternatively, we also offer support with both merchant and joint venture investment opportunities to ensure you have a selection of viable property investment avenues to choose from.
So, if you’re eager to uncover your next property investment venture, why not give us a call on 0800 500 3015? With an incredible 200 years of combined UK property management and investment experience, you’ll be in safe hands when you choose Mistoria Group’s knowledgeable team of chartered accountants and letting agents to guide your next HMO endeavour.
To send us more detail about your property investment requirements or to submit an enquiry, you can either send us an email at firstname.lastname@example.org or fill in our online contact form to get in touch.