Quote Ref: WS1

Landlords moving in to HMOs

hmo.jpg

Demand for affordable, shared accommodation is high, and rates of return for landlords are high. So it may be little wonder that more and more landlords are diversifying their let property portfolios in Houses in Multiple Occupation (HMOs), say lettings agents, Progressive Lets.

The HMO in a nutshell 

Although there are many different types of HMO, the broad principle is straightforward:

  • an HMO is a let property occupied by three or more tenants comprising more than one distinct household 
  • all the households share facilities – such as a kitchen and/or bathroom and toilet;
  • if the property is three or more storeys tall and is occupied by 5 or more tenants from separate households, it is known as a large HMO.

Pros

The following are some of the advantages which appear to be drawing landlords towards investing in HMOs: 

Demand

  • There is abundant evidence of the current demand for all types of housing, but especially affordable rental accommodation 
  • HMOs may be seen as one of the most effective short-term means for satisfying that demand, in an environment where the total population is rising and the average household size continues to decline; 

Returns

  • for the landlord of an HMO, rental yields may be as much as three times higher than for a more traditional letting, claims the website Property Investments UK, in an article dated the 10th of January 2018; 

Management of voids

  • rental yields may be higher because of the relative ease in managing voids; 
  • if one tenant moves out, you still have other tenants in occupation of the HMO, so that the impact of the void on your rental income is minimised – in a single let property, of course, a void means loss of the entire rent for that property.

Cons 

Don’t let the promise of greater financial returns blind you to some of the drawbacks of investing in an HMO. Before taking on any such investment, you might want to consider the following:

Licensing 

  • HMOs frequently receive a bad press, with the government and local authorities bent on improving standards of accommodation offered by them – hence a raft of legislation and other regulation; 
  • those controls are exercised through the licensing of HMOs by local authorities – and different local authorities have different criteria for granting such licences;
  • until recently, only large HMOs (those more than three storeys high, occupied by five or more tenants) have been subject to compulsory licensing, but more and more councils have exercised the right to introduce the requirement for all HMOs;
  • during the course of 2018, however, the website Landlord Zone predicts that compulsory licensing is likely to be extended to all HMOs;

Management

  • lettings agents may be generally less inclined to take on an HMO when compared to a more conventional single-occupancy property; 
  • you may have to accept the onerous, time-consuming and expensive job of managing multiple lettings yourself;

Capital growth 

  • the conversion and alterations you made to adapt the property for use as an HMO may adversely affect its resale value – restricting the potential market to other HMO landlords.

Although there appears to have been a recent upsurge in the number of landlords turning to HMOs, caution needs to be exercised in following that trend. There may be pros, but there are cons, too. Weigh them carefully before making your decision. 

Get our free guide to HMO insurance here.