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The number one choice for property investors this year is in houses of multiple occupation (HMO), according to new research.

The survey by Shawbrook Bank looked at the investment opportunities in property for its clients and their outlook for 2016.

These findings show that a third of the people surveyed said that HMOs are their preferred property type for investment. This is almost double the number looking at investment in this area a year ago when just 16% of investors mentioned HMOs.

In this year’s survey, 28% of investors were interested in terraced houses with the third most popular choice being flats and maisonettes at 22%.

HMOs can potentially offer high yields through multiple rents but there are strict regulations regarding planning permission and licensing. Clearly one advantage is that parts, if not all, of the property will always be occupied so the property is always producing an income. A family home may stand idle for a period between tenants moving out and a new set moving in, all the time costing its owner money.

However, there are many rules and regulations regarding HMOs. And any landlord looking at investing in a property which needs converting will need to add in the cost of the building works too.

As the kitchen and bathrooms are to be used by more than one tenant, they may need to be extra sturdy. There will need to be plenty of cupboard space in the kitchens while a cooker may need a double oven or a couple of microwaves may be required to cater for all the tenants.

There will also need to be an adequate supply of hot water at all times so that all tenants can use the bathrooms, run washing machines and so forth.

HMO landlords need to make sure that proper fire safety measures are in place, including smoke detectors. Other commitments include annual gas safety checks; electrical checks every five years; that the cooking and washing areas are up to scratch; communal areas are in good repair; and that the property is not overcrowded.

HMOs include a house which is divided into bedsits; a shared property where the tenants are not related; a hostel; a B&B which is not targeting holidaymakers; and student accommodation.

Many HMOs also need a licence from the local council and landlords or owners can be prosecuted if they do not have the licence or do not adhere to the regulations.

HMOs are a great investment but can require a great deal of work. With several different people living in one property, there are multiple rents to be collected as well as the need to deal with individual requirements and to manage appointments to show potential tenants around the rooms.

There are ways in which landlords can reduce the workload, including appointing a property management company to look after the administration and deal with tenants.

Specialist property inspection software such as Inventorybase is also available which can help with the back office and administration tasks such as making appointments, keeping records on each tenant, carrying out property inspections and making sure that the property complies with all regulations.

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