Why landlords should be looking at HMOs for their next investment

Why landlords should be looking at HMOs for their next investment

New research has found that over half of landlords are planning to invest in a House of Multiple Occupancy (HMO) in 2020, so we look at the benefits of investing in an HMO.

Over a third of landlords will be looking to invest in a HMO according to data from the mortgage lender Paragon. Not only was this a considerable increase from just one in eight landlords three months ago, but it was also the highest number of landlords looking at HMOs since Q2 in 2017.

It should come as no surprise that landlords are starting to see the appeal of HMOs. They tend to offer much higher yields and, with the UK population outgrowing the housing supply and rent getting progressively more expensive, an increasing number of young professional tenants (particularly in inner city areas) are choosing HMOs over self-contained properties. Here are a few benefits of investing in an HMO:

Higher potential yields

One of the main factors that draw investors to HMOs is the potential to earn higher yields. Rental yields for HMOs can often be three times as high as self-contained units. According to the buy-to-let index by the lender Complex, HMOs were earning average rental yields of 8.9% in Q3 2019, which is impressive considering that the average yields achieved by single let properties in the same period were 5.7%.

There is less risk

The biggest issue with single-let properties is that you’re relying on one tenant to stay on top of their rent. With HMOs, those risks are minimised, because you have income coming from multiple tenants. For example, if one of your tenants was to leave the property or default on their rent, you can still rely on the income being generated from the other tenants. There is also less risk of void periods with HMOs and it’s easier to replace a tenant if someone leaves.

You can streamline your portfolio

It’s often believed amongst investors that the more properties you own, the more income you will generate. However, while this is true, the logistics of owning multiple properties can be challenging, as you’re forever juggling the management and maintenance of multiple properties at once. HMOs are a great solution to this problem as you’ll be saving time and management costs as your income will be coming from one property.

The market for HMOs is looking positive

The affordability and flexible nature of living in a HMO is highly appealing to a number of tenants, and as renting in the UK is becoming more expensive, more young professional tenants are opting for HMOs over single-let properties. In addition to this, HMOs tend to be more resilient to market fluctuations that other buy to let models, as the low cost provides more of a consistent demand.

There are clearly a number of benefits of investing in a House of Multiple Occupancy and it may be a good idea for landlords to have one or two in their portfolio.

If you’re looking to make your next investment, get in touch with us today!

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