Property Deals Insight

The HMO market is often forgotten about or pushed to the bottom of the pile when it comes to property investment, however, HMO properties can provide strong returns. 

What is an HMO property?

HMO stands for Houses in Multiple Occupation or Occupancy. This means that the property is rented by at least three people who aren’t from one household. You will most likely be familiar with student halls and houses, these would be classed as HMOs. 

An HMO property provides a great opportunity for strong rental yields as you will be receiving multiple rent payments from the same property; in fact, some licensed HMO properties can provide double the rental yield of a traditional property. Properties providing ensuite bathrooms for each resident can further increase rental yield as this provides further privacy for a tenant. 

How was the HMO market affected by covid?

It can be argued that the HMO market was hit hardest by covid and lockdown as universities closed and students moved back home with parents or family due to the uncertainty surrounding the pandemic. Some students terminated their contracts, whilst others were offered reduced payment schemes as landlords tried to do the right thing and ease the financial burden of students, as most could no longer work due to shops and hospitality being closed (the largest employers of part-time student staff).

As universities and colleges move back to traditional methods of face to face learning mixed with some online learning, it is expected that the market will begin to pick up as students move back out of family homes to be closer to campus and university life. 

Do people want to live in HMO properties?

Whilst HMOs tend to be in close proximity to hospitals and universities, as this is the market that is most likely to be interested in an HMO property, with the continual rise of property prices and rent HMOs are becoming more and more popular.

A decade ago, those looking to take their first steps on the property ladder had much more of a chance; even after a pandemic, house prices continue to grow. You can find out more about property price trends in our blog or by using our property insights tools. Now, for many, buying a property is out of reach and renting a one or two-bedroom flat can also prove costly, making HMOs a great option for those looking to get out of the family home.

As we mentioned above, an HMO property can considerably increase the amount of income and rental yield from a property thanks to multiple tenants. This makes HMO properties a great option for those looking for new property investment opportunities, whether you are an existing landlord with a portfolio of buy to let properties or are new to the property investment game. 

So in short, yes people do want to live in HMO properties as they provide a great opportunity for freedom and to socialise.

What to consider when looking to invest in an HMO property?

As with all property investments, it is important to consider the pros and cons of an HMO investment.

Some advantages include:

  • Increased rental yield, in some cases two to three times a regular buy to let property.
  • Fewer void periods as HMO properties tend to be filled throughout the year or align with universities and colleges academic calendars.
  • You may benefit from some tax advantages as an HMO landlord.
  • The demand for affordable housing in the UK is increasing and with property prices continuing to rise, HMO properties are the only options for some tenants.

It is of course important to also consider the disadvantages of a HMO property, some include:

  • It can be difficult to raise funds or get a mortgage for an HMO property depending on your current borrower status. 
  • There may be a limited number of properties in your chosen area that are suitable as HMOs, for example it is important to consider the number of bathrooms, bedrooms and how big communal areas are in a property.
  • HMOs come with more rules and regulations which could prove costly if not adhered to.
  • You may find it difficult to find a letting agency that will manage your HMO for you as only a handful are willing to manage HMO properties.

Considering the current climate, HMO properties can provide excellent returns and be a great addition to any portfolio, for more information on HMO properties you can use of insights tools or head to our resources page.

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