A house in multiple occupation (HMO) investment properties are where three or more tenants who are not part of the same house hold can rent a property. If you’re considering converting a property into HMO’s there are several pros and cons you should know about before you consider if HMO licensing is right for your rental property.
Better yields: HMOs can offer up to three times higher rental yields than standard properties, making them a great option for investors. However, ensure you do research on the property’s location and condition both exterior and interior as this determines the rent you can charge each tenant
Fewer void periods: When renting out a property to a single tenant or even a family you will have to consider void periods- when a rental property is left unoccupied and therefore not bringing in any rental income. Through HMOs it is likely that some of your tenants will still remain even if one is vacating therefore you are less likely to lose your rental income overnight.
Arrears less likely: When renting out a house to multiple tenants who are not apart of the same household you are more able to balance the risk of late payments. If one of the tenants is late with their payment and falls into arrears, the rest of the tenants will still be paying.
High demand: Within larger cities especially HMOs are growing in demand and popularity, whether you are letting to multiple households or even to students. Ensure you perform proper research on identifying the demand and other competition before you invest in a property to ensure you maximise yout returns.
Mortgage: HMOs can make it harder to secure a mortgage than it is to secure a mortgage on a second home or buy-to-let property. Alternative financing options may be more suitable and should be considered to fund both the investment and possible renovation projects to the property
Limited Capacity: A significant amount of properties cannot be converted into HMOs. Finding a large property which can offer space to every tenant can be hard to find. In some particular areas properties which are suitable for HMO are limited and properties oppertunities which are suitable for HMOs may command much higher prices.
Resale Value: Growth in Capital can be limited on HMOs are you are likely to only be able to resell the property to other investors or landlords. Keep this point to mind before making a decision on investing in HMO properties.
Higher Start-up Costs: As HMOs are larger in size and have tenants which are from separate households they have a higher start-up cost then buy-to-let properties. Take into account more furniture for the tenants. Most importantly though legislations need to be considered and followed, such as fire regulations and environmental health regulations that are required before a council will approve your HMO property.
Property management: Ensure that you can contact a letting agent which can assist you with your investment on HMO properties, as not all letting agents manage HMOs. This means you may need to look into self-management of the properties or even higher your own member of staff to manage it, which can increase costs significantly.
How can we help?
In a crowded rental market, it’s imperative to know who can rely on to maximise your return on property rental. If you choose ZFA Group, we will handle the management of your property with expertise and experience to offer you the highest quality service.
If you’re thinking of buying-to-let, chat with one of our friendly knowledgeable employees – we can help you with a range of services, from rent guarantee for landlords and property management estate agency and property investment, and commercial letting.
Contact us today if you have any questions and we’ll take care of the rest.