When it comes to property investment, your target is to gain financially from rental returns and to reduce your risk. However, you first need to make a selection between two property types; HMO (House of Multiple Occupation) and a single occupier signing an AST (Assured Shorthold Tenancy).
An HMO is a residential property which is rented to multiple tenants who are ready to share the house and live a communal lifestyle. The multiple occupants usually sign individual contracts within the HMO.
On the other hand, a single tenant or family can occupy your property and sign an AST. The higher the occupancy levels of an HMO generally give better rental yields than standard single tenant (over 300%) and in many areas of the country, particularly where there is a large employer such as a multi-national company or hospital, there is a very strong demand from professional tenants who realise savings of at least 30% compared to a single occupier. Many young professionals and students are seeking such accommodation where they benefit from communal sharing and save in the process. The HMO model is a cost effective housing solution for the tenant.
Choose to invest in an HMO to attract a wider tenant sector
As a landlord, targeting a wide audience is a good option. An HMO can be suitable for a variety of tenants, from professionals to students and social housing. An upmarket HMO in the right location can triple the expected earning compared to a normal let to a single occupier. Moreover, void periods for parts of an HMO will have a much reduced impact on cash flow than a regular property. With rising demand and rising supply, and all the other advantages considered, an HMO clearly offers the ideal investment opportunity.
Enjoy consistency of income
One of the disadvantages of a single let, when a tenant vacates, this will adversely affect your cash flow as there is no income but the mortgage will still need to be met (if bought with a buy to let mortgage). With the right HMO product, multі-lets allows you to diversify the income which is not possible with single lets. This can offset potentially long voids where the property is empty.
Letting out the property as an HMO on a per room basis leads to optimal return on investment. The risk of faltering rental income is not as widely present in case of an HMO as you are not dependent on a single tenant.
An HMO is attractive to property investors, largely because it is possible to earn more rent and the upmarket model in the right location enables the release of positive equity from the property thereby allowing further investments. Capital gain can be substantial with the right property in the best location, refurbishment and management.
On the face of it, configuring your investment property as an HMO is a sound objective, although it may incur an additional expense and you may require licencing of the premises as an HMO with the local authority. This largely depends on the total number of occupants as well as the location.
With a full range of expert property management services, Triple A Investments manages a large number of upmarket HMO’s in the United Kingdom and through our network of agents have a number of suitable HMO properties available for purchase which would be ideal for investors looking to take advantage of this growth market.
For more information, contact our team.