Are HMOs a good investment?

Are HMOs a good investment?

Are HMOs a good investment? HMOs, firstly, are Houses in Multiple Occupation, which means that you own a property that is shared by people that are not part of an immediate family, and typically means that tenants rent a room from you and share communal spaces like kitchens.

It can be a difficult question to answer considering it depends on your own personal circumstances, your experience, your risk appetite and the length of your investment strategy.

For the purpose of answering ‘are HMOs a good investment?’, it might be better to go over some of the key features of investing in UK HMO properties, rather than outrightly saying whether they are objectively good or bad.

One useful thing to note straight away is that HMO investment in the UK has absolutely exploded over the past 10 years or so. For the younger crowd you might have seen some viral videos getting some traction across the media due to young property developers making a lot of money from fairly straight forward developments.

So what should you consider before investing in a HMO?

UK HMO’s investment entry price

Because HMO properties tend to be three or more bedrooms the price of these types of properties are usually higher than if you were to invest in a standard buy-to-let (BTL) property, unless you seek to buy at auction and convert the property, but this tends to be very risky and acquiring lending for this can be very difficult.

As a first time or early investor it certainly makes sense to invest in an existing HMO that is either already tenanted or can be easily tenanted within a reasonable amount of time.

Ultimately, though, the vast majority of HMO investors will happily tell you that the reason they’re often willing to pay extra is because the potential returns in rental outcome far outweighs the higher initial investment cost.

Risk aversion

One of the main risks in property investment comes from potential empty (void) periods where there are no tenants and so you’re left paying the mortgage with no extra income, or you’re not earning an income at all.

Furthermore, in a traditional BTL property there is a risk that tenants can fall into financial difficulty and either default on the rent, fall behind, or that you’re forced to begin eviction proceedings to reclaim the property from rental arrears.

One of the main benefits of HMO ownership is that, because you’re often letting the property to multiple tenants, that if one does fall behind, get into difficulty or falls into arrears, you’re still able to rely on the income of other tenants.

Overall, however, the main incentive for most is that with just a few adjustments, you can turn a property into a rental investment bringing in three or more times the rent you would if you let it out as a traditional BTL property.

True enough, you have to be licenced through your local council for this, but the vast majority of HMO investors would tell you that it’s a small drawback in an otherwise very profitable market.

Are HMOS a good investment?

We certainly think so – and luckily enough, we have a number of tenanted HMOs available on the market! For further information, or to discuss any queries you have on your current property, get in touch with us today!

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