What is an HMO property?
An HMO property (House in Multiple Occupation) is a type of rental property that is occupied by three or more tenants who are not part of the same household and who share common areas such as kitchen, bathroom, or living room. Typically known as a houseshare.
HMOs can be rented out on one tenancy agreement to a group, or as individual rooms on multiple tenancy agreements. HMOs are typically popular among students and young professionals. They are subject to licensing requirements and strict HMO rules to ensure the safety and well-being of the tenants, such as fire safety standards, adequate facilities, and regular maintenance checks.
Pros of investing in HMO properties
High Rental Yield
One of the main advantages of investing in an HMO property is their high rental yield. HMO properties tend to command higher rents than traditional properties due to the high demand for shared living arrangements, particularly among students and young professionals. This results in a significant return on investment for the landlord compared to a single buy-to-let (BTL) property.
Stable Cash Flow
Another benefit of investing in an HMO property is the stable and consistent cash flow that it provides to the landlord. Unlike a traditional buy-to-let (BTL) property, an HMO property typically has multiple tenants, which means that if one tenant moves out, the other rooms will still be occupied, and the landlord will still be receiving rental income.
This consistent and stable cash flow can help to make the investment in an HMO property more secure compared to a standard BTL property where a landlord could be left with no income for weeks, even months.
Investing in HMO properties can offer greater flexibility for landlords. With multiple tenants, there is the opportunity to offer different rental agreements to each tenant, such as short-term or long-term leases. This means landlords can tailor their investment strategy to suit their needs and maximise rental income.
There is an increasing demand for HMO properties as more people choose to live in shared accommodation. This is especially true in urban areas where rental prices are high, and people are looking for affordable accommodation. This increased demand means landlords can charge higher rents and are more likely to find tenants quickly.
Less Reliance on Property Value
Investing in HMO properties can be less reliant on property value than traditional buy-to-let properties. With a larger number of tenants, the rental income is the primary source of income for the landlord, which means they are less dependent on the value of the property. This can be an advantage in times of economic uncertainty where property prices do not increase or even fall in value.
Cons of investing in HMO properties
The UK government has introduced a number of regulations for HMO properties, which can be difficult for landlords to navigate. Landlords are more often than not, required to obtain a licence for their HMO property and must adhere to various safety standards.
Higher Management Costs
Managing an HMO property can be more time-consuming and expensive than managing a traditional property. Landlords must deal with multiple tenants and ensure that the communal areas are kept clean and well-maintained.
The Future of HMO’s
Investing in HMO properties can be a profitable and secure opportunity for landlords looking to maximise their return on investment. With the rise of the sharing economy, HMO properties have become increasingly popular in the UK, especially in cities like London where the demand for affordable housing is at an all-time high and it looks like this trend will continue.
According to the Office for National Statistics, the average UK household is getting older and fewer people are getting married, leading to a surge in demand for shared housing among young professionals and students. This supply vs demand dynamic has resulted in high rental yields and stable cash flow for HMO landlords.
Investing in an HMO property can be a lucrative opportunity for landlords looking to diversify their property portfolio and maximise their return on investment. The high rental yields, stable cash flow, and flexibility that HMO properties offer are attractive advantages, particularly in urban areas where demand for shared accommodation is increasing. However, the increased regulations and higher management costs associated with HMO properties should also be taken into consideration. Overall, the future of HMO properties in the UK looks promising as the demand for shared housing continues to rise, particularly among young professionals and students. As with any investment, careful research and due diligence should be undertaken to ensure that investing in an HMO property is right for the individual investor.
If you’re looking for a specialized HMO Letting Agent to let or manage your South London HMO property, or if you need expert advice on HMOs, contact us today.