ej_topmost
Property Hawk
Investing in Houses in Multiple Occupation,(HMO's) a Landlords Guide

BUYING A HOUSE IN MULTIPLE OCCUPATION (HMO)

Houses in Multiple Occupation  are generally associated with the bottom end of the lettings market. Traditionally providing accommodation for tenants unable to afford the rent on a self contained flat. Therefore, they tend to be occupied by tenants on below average earnings, often students, or tenants on benefits who are unemployed or in low paid work. The exception is in London and other high value areas, where house sharing is more common amongst tenants on good salaries because of very high rents. 
 
Tenants of Houses in Multiple Occupation typically stay for shorter periods, than other types of rental property, increasing the burden of management time and expense.
 
The lower socio-economic grouping of the tenants, a transient nature of the the tenants and the often poor external condition of these older properties has given this sector of the rental market somewhat of a ‘down market’ image.
 
Houses in Multiple Occupation offer separate bedrooms but with shared facilities such as bathrooms or kitchens shared between occupants.

The attraction of investing in HMOs

The advantages of Houses in Multiple Occupation are that rental yields are generally good making them attractive to income orientated investors or those who want to buy in more expensive areas where the economics of self-contained units doesn’t add up. The purchase of an investment property as a House in Multiple Occupation in an area which initially they couldn’t afford to live has often been used by landlords as a way of securing their future family home. After a number of years of renting the property it can be reclaimed from the tenants and converted back to a single family residence. These properties are also attractive to landlords who want to buy in the best areas, because these investment properties are then attractive to professional sharers who don’t want the commitment or expense of renting their own self contained accommodation. 
 
If the buy-to-let property is fitted out to a high standard there are opportunities for a premium rent to be achieved through the provision of premium services such as cleaning, gardening, broadband and satellite TV for example. A landlord can then make the rent inclusive of all bills, which means that there are no additional expenses for the ‘busy’ executive. I know of a landlord who provides this kind of accommodation and he claims to be achieving a 17 % gross yield. This is very attractive in the current low yield environment. In addition there are attractions to this type of investment property in that some landlords are happier with the concept of a single more expensive property with professional tenants in, rather than having to manage a number of cheaper properties in less salubrious areas.
 
Professional landlord insurance rates from Alan Boswell Group

Cheaper HMO alternatives

Alternatively, HMOs are often found in inexpensive areas and landlords have often used the fact that they can buy a lot of residential space cheaply to maximise income by letting out the space to less ‘choosy’ tenants. These include students and those tenants receiving benefits. Whilst rents are low the fact that occupational density is high and capital costs low, yields can be very attractive, reaching 20%+ in some circumstances.

The downside to investing in HMOs

The downside to HMO investments is the heavy management burden they place on a landlord. The density of their occupation means a landlord might have five or more tenancies running in a single investment property. The rapid turnaround in tenancy's can result in a constant cycle of letting and re-letting. Each new tenancy taking up hours of a landlords time, checking new tenants in and out of a property. Another downside to HMO property is the increasing burden of licensing placed upon this particular segment of the rental industry. The Government introduced a system of HMO licensing as part of the 2004 housing act.
 
This mandatory licensing of HMOs requires landlords to apply for a license from the local authority in which their investment property is located. A HMO must meet specified standards of layout and safety to become licenced, often requiring expensive building work, and the installation of a dedicated fire alarm system.  Before a landlord enters this sector I would advise they look very carefully at the requirments of the relevant authorities and in particluar the local authority where the HMO is to be purchased.
 
Professional landlord insurance rates from Alan Boswell Group
 

 

 

Comments (0)

Name
E-mail (Will not appear online)
Subject
Comment
To prevent automated Bots form spamming, please enter the text you see in the image below in the appropriate input box. Your comment will only be submitted if the strings match. Please ensure that your browser supports and accepts cookies, or your comment cannot be verified correctly.
»
This comment form is powered by GentleSource Comment Script. It can be included in PHP or HTML files and allows visitors to leave comments on the website.
Most popular landlord information and FAQs

 

What rental yield should a landlord try to achieve?
Accelerated possession - Section 21 Notice
Non payment of rent
The Tenancy Deposit Scheme (TDS)
How to prepare a property inventory
Grounds for possession of a rental property
Fair wear and tear on a rental property?
Filling out a N5B form for possession
Landlord insurance advice
Letting to students
How do I choose the best tenant?
Should I use a letting agent?
Commercial Mortgages

Whole market search.
Instant personalised quote.
Rates updated in real time.

Find the most suitable mortgage for your individual requirements using our advanced buy-to-let mortgage finder.

Search

FORMS FOR LETTING PROPERTY

FREE TENANCY AGREEMENT (AST)
FREE SECTION 213 NOTICE
FREE PROPERTY INVENTORY
FREE SECTION 21 NOTICE
FREE SECTION 8 NOTICE
FREE TENANCY GUARANTOR FORMS
SERVING NOTICE

FINANCE AND TAX ON RENTAL PROPERTY

INCOME TAX
CAPITAL GAINS TAX
LANDLORD INSURANCE
PROPERTY INVESTMENTS
OTHER BTL FINANCE
BTL FINANCE - THINGS TO KNOW
BUY TO LET MORTGAGES
BTL MORTGAGE BROKERS
SELLING A BTL PROPERTY

RENTAL PROPERTY REGULATIONS

GENERAL SAFETY
GAS SAFETY
ELECTRICAL SAFETY
FURNITURE AND FURNISHINGS
FIRE SAFETY
TV LICENCES
HMO (HOUSE IN MULTIPLE OCCUPATION)
TENANCY DEPOSIT SCHEME (TDS)
ENERGY PERFORMANCE CERTIFICATES
COMMUNAL HEATING REGULATIONS

INVESTING IN BTL PROPERTY

A GUIDE FOR NEW LANDLORDS
WHICH PERIOD OF PROPERTY
CALCULATING RETURNS
RENTAL YIELDS
FINDING PROPERTY
SELECTION STRATEGY
INVESTMENT CHECKLIST
PROPERTY AUCTIONS
BMV PROPERTY
BUYING OFF PLAN
BUYING APARTMENTS
BUYING HOUSES
BUYING HMO'S
ALTERNATIVE INVESTMENT
KNOWING THE RISKS
PROPERTY INVESTMENT CLUBS
RENTAL TYPES

MANAGING RENTAL PROPERTY

GIVING NOTICE TO LEAVE
NON - PAYMENT OF RENT
TENANT ABANDONMENT
GETTING YOUR MONEY BACK
THE TENANT WONT MOVE OUT
THE TENANT DOES A BUNK
SQUATTERS
RAISING THE RENT
REDUCING THE RENT
REPAYING THE TENANCY DEPOSIT
FAIR WEAR AND TEAR
MOULD AND CONDENSATION
MAINTENANCE OF A RENTAL PROPERTY
APPLIANCES
LANDLORD ASSOCIATIONS

 

LETTING RENTAL PROPERTY

TEN STEPS TO LETTING
PROPERTY MARKETING
WRITING A LETTING ADVERT
FURNISHING A PROPERTY
LETTING AGENT OR DIY
SELECTING A LETTING AGENT
VETTING TENANTS
TENANTS ON BENEFITS
LETTING TO STUDENTS
PREPARING AN INVENTORY
PROPERTY HANDOVER
RENTAL DEPOSIT
TERMS OF A TENANCY
LENGTH OF A TENANCY
RESPONSIBILITY FOR REPAIR AND MAINTENANCE
TENANCIES IN SCOTLAND
ALTERNATIVE TENANCIES
LETTING TO TENANTS WITH PETS

 

LEGISLATION OF LETTING PROPERTY

INTRODUCTION
TENANCY DEPOSIT DISPUTES
ARBITRATION
ALTERNATIVE DISPUTE RESOLUTION
TRIBUNALS
HOUSING ACT APPEAL DISPUTES
THE LANDS TRIBUNAL
RIGHTS OF LIGHT APPLICATION
APPEALS FROM LEASEHOLD VALUATION TRIBUNALS (LVT's)
POSSESSION PROCEEDINGS
POSSESSION - SECTION 8 NOTICE
POSSESSION - SECTION 21 NOTICE
SECTION 21 TIMETABLE AND PROCESS
N5B POSSESSION
POSSESSION ORDERS
GROUNDS FOR POSSESSION
PREPARING FOR A POSSESSION HEARING
LEASEHOLD DISPUTES
HARASSMENT BY LANDLORDS
RENT DISPUTES BETWEEN LANDLORD & TENANT
FAIR RENT (RAC)
MARKET RENT UNDER AST
LEASEHOLD VALUATION TRIBUNALS
MODIFICATION OF RESTRICTIVE COVENANTS