Houses in Multiple Occupation (HMOs): are they a good investment, or more trouble than they’re worth?
While buy-to-let empires have been built on HMOs, you need to be sure that this type of property investment is for you.
Here’s three questions you should ask yourself if you’re considering investing in HMOs.
1. Are you investing for capital growth, or regular income?
For those willing to put in both the upfront and the ongoing costs and effort (see Question 2), HMOs have the potential for very high yields. The monthly income from an HMO can be up to three times what it would be if you rented it as a single house to a family!
So if you’re looking for a higher monthly income, HMOs might be for you.
If you’re looking to increase the value of the property for eventual sale, then keep in mind that the extra wear and tear that comes with multiple tenants can hold down the value of the property itself.
2. Are you prepared for the upfront costs and regulations?
Becoming an HMO landlord is a whole different kettle of fish to owning a standard property. It will start with talking to your mortgage lender about a specialist mortgage – they may not allow you to purchase an HMO, or intended HMO, with a standard buy to let mortgage.
Then you may need to apply for planning permission if the house was not previously an HMO. Some councils, like Oxfordshire, will only allow a certain number of properties in an area to operate as HMOs and will require planning permission and licensing for a conversion.
Even if your property is already an HMO, it will require a licence. The licence entails inspections, fees and will need to be renewed every twelve months.
Complying with the inspections will mean installing fire safety precautions such as fire doors, extinguishers and alarms.
If you find this daunting, being an HMO landlord may not be for you.
3. Is being a landlord your first or your second income?
Being an HMO landlord is more for the serious landlord who’s prepared to invest serious time and money for the best return. It’s not for the half-hearted (or the fainthearted!), but if this sounds like your kind of challenge, the rewards are substantial.
At The Better Letter, we’re ideally placed to give you advice on building an HMO portfolio. We can support you whether you want to manage your own properties, or take advantage of our fully-managed service.
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