If you are investing in a buy to let property, you want to ensure that you maximise the amount of rental income it generates.
One of the well-established means of achieving that goal is to let the property as a House in Multiple Occupation (HMO). Not only is it already a favourite among buy to let landlords, but it is also fast becoming the chosen method for letting a property.
Recent research – published by Property Reporter on the 9th of September 2019, reveals that a fifth of all landlords looking to expand their property portfolios are looking at the advantages of HMOs.
The attraction of an HMO is easy to understand. While the average rental yield of all privately let property is currently around 5.5% - the lowest it has been for some nine years – the average returns on an HMO are 6.3%, says the study.
The trend towards HMO investment is also illustrated by the number of landlords selling their properties. Among those who own let terraced houses, for example, 40% are planning to sell them in the year ahead. But only 8% of landlords who own HMOs as part of their property portfolios are planning to sell.
The research also shows that landlords who own between 11 and 19 let properties tend to earn more – an average of 5.9% – than those who own fewer homes. Those with more than 11 dwellings in their portfolios, however, also have a greater mix of at least three different types of property.
Why is the HMO more profitable?
An HMO is deemed to be a let property in which more than three tenants live, forming more than one household, and sharing essential facilities such as a kitchen and bathroom and toilet.
The same property, therefore, has multiple tenancies, typically increasing the rental income that would have been earned if it was let to a single tenant. The security and continuity of rental income are also improved in the departure of one tenant leaves a temporary void.
Legislative changes which came into effect from the 1st of October 2018 made it obligatory for any landlord of an HMO in which five or more tenants live to obtain a licence for that purpose from the local authority. Other HMOs may also need to be licensed, depending on the local authority responsible for housing policies in that area.
To qualify as an HMO licence-holding landlord, you must be "a fit and proper person" – free of any convictions for breaches of the relevant housing legislation.
Whether or not the HMO needs to be licensed, you are also responsible for adhering to much stricter health and safety regulations than single-let properties. The housing charity Shelter, for example, explains that the HMO must not be overcrowded and there must be enough bathroom and cooking facilities for all the tenants living there. Shared facilities and other communal areas must be kept clean and in good repair, and additional fire safety measures such as fire doors, fire alarms, smoke detectors and CO2 detectors must be installed.
Setting up an HMO
If you are interested in the idea of setting up an HMO as your next let property, you might want to read our guide on the subject as a good starting point.