The Benefits of HMO to you and them.
Many people think House in Multiple Occupation (HMO) property investing has lots of downfalls and can take too much time and that they are not sure it is worth the effort. Not sure it’s not worth the effort?
But the many benefits of HMO property investing outweigh the negatives. Simply because done correctly and within regulation, the yield return can be very satisfying and you also collectively give people a chance to afford a place to live in until they are ready to upgrade.
To begin with it’s a huge growth market. We are and have been in a housing crisis in the UK, the government is actually promoting communal living for people to afford a place to live. When housing benefit rules change so that single people under 35 years old are only can only be entitled to a room in a shared house this has pushed more people into the HMO market.
People will always be looking for a cost-effective solution to meet their housing needs This can vary from people on benefits, students all the way to highly paid professional individuals and why not? It’s easier to save money spending between £100-130 per week than £300 for a flat. Difference of around £10,000 per year.
The day where you could get a 100% mortgage are over and now we are accepting that living with others is the wat forward,. Within reason of course, no one is going to poor standards. If you have a quality product you will get the money for it.
As HMO’s generate huge cash, you can much more money from a very good HMO property than you ever could for a single let. Generatıng loads of money means lots of profits, because more tenants equals less risk not the other way round. Having 80% of your tenants paying on time means your income is on time. On the other hand should a family of 4-5 in a 4-5 bedroom house end up paying late or not paying at all, you’ve have nothing. But with an HMO property, the remaining income from the paying tenants will keep cover your mortgage and bills rather than fork out from your own pocket.
As we mentioned earlier it will be very unlikely all of the tenants will decide to leave at the same time, which means you’ll always have at least some income every month even if you’re not at full capacity still giving you higher returns as letting properties by the room rather than as a whole always generates higher rent. A room for professionals can rent for £150 a week. A 4 bed house may get income of £1300 pcm, but as a HMO you’re looking at an income of £1700 pcm.
However, HMO’s effectively earn more money, but with every favourable reason there are a few downsides, such as:
- More legislation which comes with more planning requirements than normal lets would require, such as Article 4. The government has introduced new a new set of rules taking effect this year.
- Raising finance can be very difficult especially for new landlords
- HMO requires properties that can work, not every property can operate as an HMO
- HMO mortgages require a much higher deposit contribution, as mortgage providers will want to cover themselves against the risks they think will affect mortgage payments.
- Finding a letting agent that is willing to manage HMOs is becoming difficult as the majority enjoy managing standard buy to lets. This will increase the chance that you will end up managing the property, although this be very time-consuming, it will be a process gaining you experience.
- A special insurance policy will be required.
- Possible Nuisance claims might be brought by neighbours due to increases in noise and rubbish. If not managed correctly you as the landlord could be held partly responsible for this but with the right letting agent and proper tenants this is probability is quickly eradicated.
- HMO’s will have much higher start-up costs than a buy to let. More furniture is needed. There are environmental health regulations, fire regulations that need to be taken into consideration, but all of this is for your own benefit and for the tenant’s safety and increase the chance of getting better rental money and avoiding huge fines due to breaches of the licence.
A lovely advantage to HMO properties is that unlike a buy-to-let property, should a tenant move out then the only requirement for the landlord would may be to just redecorate a single room and not the whole property, allowing the maintenance costs to be reduced in a single hit. The landlord also has the advantage in being able to convert the unused rooms into income generating bedrooms. Only the kitchen, bathroom, toilet and lounge will be considered essential as other rooms such as studies or second sitting rooms can easily be transformed into more bedrooms.
The negatives do not need to be a permanent thorn in your aspiration of growing your income. You can easily offset most of these negatives with extra management, finding and appointing a good letting agent. Checking that they actually have good experience of managing and letting HMO’s and should you choose to opt for guaranteed rent, then it is vital the letting agent has good financial strength as your property won’t be the only one under the guaranteed rent scheme. This will secure your income.
Most agents will claim they have experience and sometimes they don’t have a clue due to the different management style required.
Enquire where they would advertise the rooms avoid agents who don’t mention sites like Spareroom.com, Easyroomate.com or Gumtree because it is very likely they’re on sites like rightmove and Zoopla, the last place people would look.
It is important to know what you’re getting for management as HMO’s require a lot more hands on management as they need to visit the property week to keep a tab for any possible problems.
HMO’s come with great benefits for landlords who are looking for quick growth for their investment, with current housing climate not favouring the population, a roof over their head is not the dream 5 bedroom mansion but, a 15m2 room with decent quality furnishing. The aim is to have your own room.