Investing in property and becoming a landlord is one of the safest investments you can make. Not only do property values seldom drop but you can potentially use them to generate a passive income for yourself that will eventually more than make up for the initial cost of the property. But might there be a way to reach that golden plateau even sooner? Perhaps by letting your property out to multiple occupants at once. That’s the general idea behind an HMO.
What is an HMO?
A house in multiple occupation (HMO) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. Typically, these are either student accommodations or flat shares in major cities where rental prices are prohibitively expensive.
What are the requirements to own one?
You will most likely need a specific license if you want to let an HMO and there are specific HMO regulations to follow. If you are letting your property to five or more tenants from more than one household and those tenants share toilet, bathroom or kitchen facilities then your property will be considered as a large HMO and will need a licence. Even if just some of these criteria apply then you might still need a license so check with the local authority if you’re unsure. Note that you will also have to meet minimum room size requirements so you might need to do some conversion work on the bones of the property before going ahead with your HMO plans.
What are the benefits of letting out an HMO?
• HMOs can produce higher rental yields and yet you’re still only paying the same mortgage rate. However, there is more work to be done.
• Some locations are ideal for HMOs. In student areas where there are terraced houses with multiple stories, for example, the potential should be obvious.
• The demand for shared living accommodation remains high even against economic change and uncertainty. Indeed, there’s rising demand for affordable HMO households, particularly in larger cities.
• Even when one tenant moves out you still have others paying their rent while you find a replacement.
• There will be less exposure to arrears as if one tenant falls on hard times and starts falling behind on their rent, at least there are others to pick up the slack.
• By investing in HMOs you might be viable to tax advantages and deductions.
Things to consider:
• Start-up costs are always going to be slightly higher as more renovation work will probably need to be done and more HMO furniture and appliances will need to be bought.
• It’s harder to get a mortgage and there are fewer letting agents willing to manage HMOs.
• It can be quite complicated so might not be a good idea for a new landlord.