Why Should I Be Interested In An HMO?
What is an HMO?
A House of Multiple Occupancy or a property shared by at least 3 tenants (not members of the same family) forming one household where the tenants share bathroom and/or kitchen facilities.
Also known as Renting by the Room!
Renting by the room is a great way of maximising your property returns. HMOs can generate 2-3 times the income of the same property let as a single unit.
The big PLUS of multi-occupancy is they are rarely empty. If one tenant leaves there’s no panic as you’re still receiving rent from your other tenants whilst you look for a replacement.
Since 2008, HMOs have been very popular with investors looking to compensate for their flat-lining capital growth and for good cash flow.
With average UK rental yields at approximately 5.8% then a 12% yield for houses let by the room is a really attractive proposition for many.
Ok, Give Me a Real Example…
You own a 4-bed house that typically commands £1000/month if it was tenanted by a family. Convert one of the reception rooms into an additional bedroom and rent each room out at £400/month and your monthly income has now jumped to £2000. Convert two of the reception rooms and you’re now receiving £2400/month!
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Give Me Some More Good News
- Cheaper Living for Tenants
- Letting to Professionals
Who’s A Typical Sharer?
- Young people leaving home and unable to access home ownership or social rented accommodation.
- Professional House Shares – professionals wishing to live near their place of work
- The over-45s -renting on their own is becoming unaffordable as rents rise and salaries stagnate or drop.
- Graduates who want the flexibility of where they work and to prolong the student lifestyle by house sharing
What’s Driving Demand for HMOs?
- Restricted borrowing from banks for traditional house purchases
- Changes in housing benefit rules – since January 2012 under-35s only receive financial help for single rooms in shared houses rather than sole occupancy flats.
- Rising rents for whole properties.
- Rising cost of utility bills
- Flexibility and convenience – no need to worry about buying appliances, furnishings or paying bills.
- The Friends/This Life factor – young people like the social aspect of sharing
Hold On! If It’s So Attractive Why Isn’t Everyone Doing It?
Nobody said it was easy to get to right. It is considerably more complex and much harder work than buying and managing a single let property. You need to take into account:
- Planning issues
- Refurbishing to a legal standard
- Cleaning and maintenance of communal areas
- Management issues
- HMOs are most definitely ‘hands-on’
- BUT – invest via The House Crowd and you can leave all that to our Management Company. You do not need to do anything.
- I’m Still Interested…How Do You Do It Well?
Before embarking on a HMO, know your market and area. As you’ll have a higher turnover of tenants make sure your target audience is in plentiful supply. If you’re seeking young professionals, ensure your property is near employment and public transport.
Marketing your HMO is more time consuming than a sole occupancy and managing an HMO can sometimes feel like running a small hotel. You’ll be responsible for finding tenants either through local advertising or an agency (not all agencies are prepared to do HMOs due to the hassle factor.)
All tenants will need thorough referencing – are they in work, ability to pay, any past problems with previous tenancies, CCJs?
Choosing the right mix of tenants isn’t easy either. Think about the dynamics of the house – although there’s no guarantee of harmony you’ll need to exercise your judgement on personality types.
Summary of Benefits
- As a multi-occupancy your property can generate 2-3 times more income than a single-let.
- Avoiding the voids! HMOs are rarely empty which means continuous flow of income.
- A fast growing market due to rising demand for private room rentals.
- Professional tenants are reliable – they’re likely to stay at least one year or more before career climbing and moving on and their ability to pay is good.