Landlords are looking at houses of multiple occupation (HMO) for investment as they often deliver higher yields. Mortgages for Business research shows that 28 per cent of landlords who took part in the survey are thinking about buying a HMO, which is a 10 per cent rise on six months ago. Conversely, investment in conventional houses and apartments has fallen by four per cent to 79 per cent in the same period.
Investors are attracted to HMOs, particularly in UK cities with a high number of students and young professional workers. These tenants appreciate the convenience and the price of sharing a house rather than paying out for a flat just for themselves. In the Midlands or the North, the average rent of a room in a house share is between £325 and £500 per month.
Although this market is becoming more competitive with the growth of specialist student accommodation blocks with hotel-type facilities, if managed correctly investors can still enjoy an average gross yield of between 10 and 13 per cent. This compares to a standard single-let property with an average yield of four to eight per cent.
HMOs can have between four and 10 tenants, each of whom have their own room, with shared communal areas such as a kitchen-diner or lounge. The rent often includes internet, utility bills and council tax. If you take the example of a three-bedroom property, if it was let to a single family it might attract a gross rent of £650 but if it was converted for shared tenants it could bring in more than £2,000 a month.
Clearly there are more management issues regarding HMOs but a professional landlord will know how to deal with these or could put the properties into the hands of a management company. The first issue is that you are dealing with a greater number of tenants, which will be more time-consuming with a greater number of individual rent payments to collect each month. There are also the legal requirements and licences to consider as HMOs have their own set of building regulations and increased governance from the local authorities. It is essential that landlords meet these statutory requirements so that they do not put their tenants at risk.
The time taken in dealing with issues such as difficult tenants, chasing late rent payments, ensuring that the buildings are legal, repairing the property and keeping communal areas clean will need to be factored in when weighing up the options as to where is best to invest in the buy-to-let world. If you decide to let a management company take on these tasks, obviously their fees need to be taken into consideration too.
There is software available which will simplify the back office duties associated with being a landlord so you can keep abreast of HMO regulations and make sure that you comply with them as well as keeping records of tenants and their payments.
When buying a HMO, make sure that it has at least five or six rooms to convert to bedrooms. Look at the location to see how many students and young professional workers are in the area and go for properties in proximity to good public transport links.