Before we get into the more in-depth questions, we need to clarify exactly what an HMO is.
HMO stands for “House of Multiple Occupancy”, these houses or flats are let to three or more people from at least two different households.
- Why should you invest in HMO’s?
- What opportunities do they provide?
- What type of tenant should I serve with my HMO?
In an HMO, they will share a kitchen, living space (known as a common area) and potentially a bathroom/toilet. HMO’s aren’t usually in existing purpose build apartment blocks, instead investors will convert houses and other large buildings to suit HMO regulations. HMO’s do have more regulations and standards to meet compared to non-HMO settings. However, this should not be off-putting as HMO’s can be great investments. Do bear in mind that each local authority has different rules about HMOs in their area, therefore you’ll need to consult with the local authority during the whole process.
Why should you invest in HMO’s?
There are many advantages to investing in HMO’s over other property investment types.
The first obvious reason is the shortage of housing in the UK and the rising cost of accommodation. It is much harder to get on the property ladder, there are more people finding themselves in increasingly difficult financial situations and so more and more people are turning to rental accommodation. HMO’s are a way to provide people with that affordable accommodation they are after and the number of people looking for this accommodation is continuing to grow.
A well run HMO can provide the investor with more money than if they invested in several single lets instead.
What opportunities do they provide?
Most investors will also be looking for investments that cause them as little hassle as possible. Although HMO’s on the face of it sounds like more work, they can in fact be less hassle. This is because all of your tenants are grouped together and if there are any problems you don’t need to go to several addresses in order to solve any problems.
Having fewer locations to worry about also comes with less risk. Each property you invest in if you invest in non-HMO type rental agreements are usually rented out to one or two people. If they decide to leave, 100% of your income from that one property disappears.
If you instead invest in HMO’s, you minimise that risk because an HMO will traditionally have three or more people in it, usually from different households. If one of them leaves, you’re only losing a fraction of your income compared to 100%.
What type of tenant should I serve with my HMO?
Although you have the legal bit to consider too, you also need to choose wisely when choosing tenants for HMOs. Depending on where your HMO is, it’s best to research the local area.
- Are there large hospitals, office blocks, a university?
- Is it close to a train station that commuters would use to travel to the city?
If there is, you could contact the local university and ask them for a university accommodation list, or to be considered as one of their recommended landlords.
Make sure you advertise at the correct time for students! They will be looking for accommodation early in the new year ready for the next academic year (ready to move in for July/August). For other professionals, make sure to advertise all year round!
You can also contact local letting agents and begin to build a relationship with them, to see what they offer and to find out what most people who are renting are looking for.
There are different ways to find the right tenants and it’s all about building a relationship with the surrounding area.
Of course, whilst doing your own research and seeking out the ideal tenant, you also need to be advertising to make sure the ideal tenant can find you. Your HMO may do a great job of selling itself! Make sure you put “To Let” signs outside of your HMOs, and that you advertise them on gumtree.com and websites such as spareroom.co.uk.
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