Investing in property can be hugely lucrative, but you have to make the right choices at the right time to profit. If you’re thinking of buying, there are various ways to make money from bricks and mortar. One option is to buy to let. If you take this path, it’s worth exploring the concept of investing in an HMO, also known as a house in multiple occupation or a house of multiple occupancy.
What exactly is an HMO?
An HMO is a property, which has three or more tenants that pay a rental fee. Families are excluded, and tenants must share communal facilities like bathrooms or kitchens. In most cases, tenants pay a flat fee per bedroom, with the property owner receiving payment from every individual, usually on a monthly basis. This is a fairly simplistic view of an HMO, and restrictions and definitions vary according to local authority guidelines. If you are thinking about investing in a HMO, it’s crucial to check the criteria with your local authority about licensing requirements.
The advantages of investing in an HMO
The most significant benefit of an HMO for the majority of property owners is the increased rental value of the house or flat. When you rent your home out to a family, for example, you collect a single monthly payment. When you have an HMO, you receive rental payments from every tenant. In most cases, rental yields for HMOs can be up to three times higher than a conventional rental arrangement. Another potential benefit is a reduced risk of dry spells. If your tenant gives you notice that they’re moving out, and you can’t find another tenant to move in straight away, this will leave you without an income from the property. With a house of multiple occupancy, there’s a much lower risk of being without an income because it’s unlikely that all your tenants will leave at the same time and that you’ll be unable to fill any of the vacant rooms. HMOs are also tapping into a growing trend for affordable, flexible housing so investing now could prove lucrative in the future.
Are there any downsides?
The downside of an HMO is flexibility. There are fewer properties on the market that are suited to this type of arrangement, and there are criteria and regulations in place to govern how HMOs are managed and marketed. Fewer letting agents are willing to take on HMOs than traditional rental properties, and it might be harder to get a mortgage than it would be to secure a straightforward buy to let loan. The start-up cost may also be higher, which may make this option unsuitable for some investors.
If you’re thinking about investing in an HMO, it’s beneficial to do some research and to weigh up the pros and cons. Have a look at the local market, see if there’s a growing demand for houses that are geared towards multiple tenants, and figure out if taking this leap has a high chance of financial success. If the market is growing, you’re able to secure finances, and you know exactly what you’re getting involved in, there’s every chance that investing in an HMO could work for you.
