Investing in a HMO property
Updated: Jul 12
Do you want to make money from your property? How about adding value by investing in residential property and making money from it? If so, a house of multiple occupation (HMO) is a great way to go. With high rental yields, HMO’s can be very easy to manage, making the investment guaranteed to be profitable.
HMO has been the fastest growing sector of the private rented sector in recent years, with this growing demand expected to continue. In fact, on average HMO rents are 20% higher than those of purpose-built flats and houses.
HMOs are properties where three or more related people live and share facilities. These can include a house with extra rooms for students, care homes or shared living arrangements.
This guide will help you take some of the worry out of your next HMO investment.
What are the benefits of investing in HMO property?
The rental yields on HMOs are usually three times higher than standard properties, making them a great choice of investors. It’s important to bear in mind that the rent you charge will depend on the property’s location, condition and interior.
Fewer void periods between tenants
In a typical one person/family tenancy, there are periods where you could potentially lose all of your rental income if they decide to move out. Even more so, if you’re unable to find a new tenant to fill the void. With HMO, it’s more than likely that the remainder of your tenants will remain in the property despite someone vacating, meaning you will only lost a portion of your rent payments in one go.
Less likely to get arrears
Letting a house to multiple tenants may balance the risk of late payments. Although it won’t eradicate anyone falling into arrears, it does mean that you have others contributing to help you balance it out.
Frequently, most spending on HMO's may be regarded as a revenue cost. This means it qualifies as either a corporation or income tax-deduction (best to speak to your accountant to understand what you can/cannot claim)
Demand for HMOs has never been higher, especially in overpopulated cities such as London. Be sure to research your HMO location so you can achieve the maximum return on investment for your property.
What are the drawbacks of investing in HMO property?
Securing a mortgage
Securing a mortgage for a HMO can be harder than securing a mortgage on multiple properties or even a buy-to-let property. Other financing options may need considering to fund your investment.
From fire regulations to environmental health regulations, there are legislations that you need to overcome before a council will approve your HMO property.
You cannot turn any and every single property into a HMO. It requires a large building with plenty of space for every tenant and dependent on the area, suitable HMO properties are limited.
If you’re ever in a position where you want to sell a HMO, you’ll find that capital growth can be limited. Usually the purchase comes from a property investor or landlord, so bear this in mind when making a final decision on your investment.
Higher start up costs
HMOs have high start up costs due to having to purchase more furniture and/or appliances than standard buy-to-let properties.
Many HMO landlords find themselves increasing costs by self-managing or hiring staff to manage their properties, as not all letting agents will take them on.
Here at Elliot Leigh, we have years of experience and expertise in HMO. Elliot Leigh can provide advice on this and help landlords with the additional regulation/standards needed to rent a property as an HMO. Elliot Leigh can take the risk and hassle out of renting HMO properties by managing the entire property and guaranteeing the rent on a long term contract. Contact us for more information.