Many property investors already know that HMOs can make excellent investments. Their higher occupancy levels generally give better rental yields than standard buy-to-lets and in many areas of the country, particularly where there is a larger transient population such as students, there is a strong demand and hence a ready supply of tenants.
Typically, we are talking about properties that have 3 or more occupants, who are not part of the same family and who have some element of shared facilities such as bathrooms and kitchens. If they are all in separate self-contained units then they are not in an HMO, they are just in a block of flats for example. Over time the definition is coming to mean the same thing all over the UK but it is always worth talking to your local council’s Housing Department so you are completely clear about the local rules and can apply them to your investment.
HMO investments regularly return net cash yields up to 13% (rental and capital growth). This is a much better return than most regular buy-to-let properties. You can use a management company if you don’t want to deal with the day to day issues of having 4 or more tenants in one house. That can take some strain off of you if you are not wanting to be a landlord but, rather, an investor.
Tenants are often easier to find for HMOs and you won’t lose out as much if one falls behind in their rent as others will still be paying. Students and young professionals are most likely to rent in an HMO and could stay your tenant for quite a few years.
Demand for this type of housing is strong and, in many areas, it’s increasing as it is flexible and often suitable for young professionals. You can furnish your investment dependent on whether you want students as tenants or young professionals.
There can also be tax advantages when setting up and operating an HMO. Although HMOs do have a few more rules and regulations, their returns are likely to be higher so they justify the extra effort to create your investment portfolio.