Should you get into the HMO market?

Should you get into the HMO market?

Background, Buy To Let, New

Investing in a shared house or HMO might conjure up images of investing in dingy, damp properties, or having your property wrecked by students on a weekly basis. Neither of which are typical of the HMO market. But at the moment buying, or setting up, and letting a house in multiple occupation can make a more attractive investment opportunity than ever before.

Let’s look at a few reasons why the HMO market can offer opportunities to investors right now:

1.Demand for shared accommodation is rising. With rising rents and living costs and benefits restrictions more people are being attracted to shared accommodation, or only have a budget for shared accommodation, rather than renting a flat or house outright.

Many areas which are in demand for HMO shared accommodation actually have a shortage of such property.

2.Yields are higher than for standard family or professional lets. Often 2/3 times higher.

In times when landlords are facing increased costs as a result of more landlord legislation and restricted tax allowances a shared property can be one way of actually not just maintaining your yields but increasing them. A property that is not viable as a single let to one person or a family may be highly viable (and profitable) as a HMO or multilet.

3.Shared accommodation offers excellent potential to add value, and own an ‘accommodation business’ not just a property investment. Should you wish to sell your shared property in future you may be able to sell it as a going concern, offering the new owner a ready made business and income, for significantly more than the value of the property alone.

Of course, there are some disadvantages to investing in shared property. There is more legislation to deal with, running costs will be higher, and more management time will be involvement.

Here are a few things to bear in mind if you are interested in investing in a HMO property:

Target your market. The market for shared property divides into several sub-markets. Each of these is quite different and, generally, your property will work better if it only serves one of these sub-markets.

For example, you could set up a shared property aimed at those on Housing Benefit, at students if in an area with a university or college, at young professionals or contract workers.

Choose your area carefully. Some areas have a large demand for shared accommodation, while others have little or even none. Research the area carefully. Check demand for property with local agents and websites where shared accommodation is advertised.

Note. A HMO may require a local authority licence and/or planning consent depending on its size and location. Check with the local authority as to what is required in a particular area and the chances of obtaining it before even searching for suitable property there.

Often the places with the highest demand for HMO accommodation are more likely to require permission or a licence.

Source a suitable property. Your HMO property will need enough space to accommodate rooms of sufficient size (as a general guide a bedroom must provide at least 6.5m2 of space), plus an appropriate number of kitchens and bathrooms for the number of people that will live there. Again the local authority can provide details of their requirements.

While converting an existing house is the usual way to create a HMO some investors are now converting commercial property or, occasionally, building HMOs from scratch.

Make arrangements for management. A HMO or multilet is not a ‘buy it and leave it’ type property investment as a single family let might be and generally requires closer supervision and management if it is to be successful.

Decide whether you will manage the property yourself – bearing in mind this will take time and a degree of expertise – or will use an agent (one experienced in managing share property) to manage your HMO for you.

If a HMO does not meet your investment requirements then you might like to consider these other ways of maximising your yields: Insider Report, 12 Ways To Improve Your Letting Yields

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