You may have seen HMO investments increasing in popularity, even with recent legislation changes and COVID restrictions reducing rental demand in some areas.
Before you decide if it is best to invest in an HMO instead of a standard buy-to-let property, we want to bring you the pros and cons of HMO investments, so that you can decide.
Firstly, what is an HMO?
An HMO is a ‘multi-let’ rental property with three or more tenants, not from one household/family, that share amenities. This can include:
- A house which is split into bedsits or units
- A house, or flat share, where each of your tenants has their own tenancy agreement
- Students who live in shared accommodation
- One of the most significant advantages of investing in an HMO is that it will generate a rental income increase of three to five times a standard buy-to-let home.
- The property will help provide more people with affordable accommodation.
- Cash flow is better as you won’t have as much impact during rental void periods. When one tenant moves out, you will have the other rooms tenanted.
- You have less exposure to arrears, even if one tenant falls behind on rent – if the other tenants are still paying on time.
- The demand for this type of housing is strong and growing in high demand areas, such as close to excellent transport, restaurants, shops, pubs.
- There can be tax advantages when setting up and operating an HMO.
- Tenants may be easier to find, especially is landlords offer to make bills inclusive of the rental rates.
- You need to have an appropriate HMO licence and ensure the property complies with the licensing conditions.
- If investors buy a family house intending to convert it into an HMO property, they need to have the conversion budget and be aware of the requirements to comply as an HMO property.
- Some lenders will not provide mortgages on HMO properties. Those that do may charge higher interest rates or demand a higher deposit.
- Turnover in tenants is generally higher because HMOs are often rented to students or mobile young professionals.
- The right property in the right neighbourhood must be selected. Not all houses can be converted cost-effectively, and not all locations are in a high demand area.
- There is a higher level of paperwork involved in managing the individual tenants.
- Fewer letting agents are willing to manage HMOs. This means you need to find the right agent. Otherwise, you may need to self-manage the property, which can be very time-consuming.
As specialists in HMO conversions, licencing and management since 2006, we can provide you with advice on your HMO property. Call us on +44 (0) 203 286 6468 or email us at HMO@RekaProperty.co.uk.