A Beginner’s Guide To HMOs: A Smart Property Investment?

The majority of property investors are guilty of being too one-dimensional. Everyone is always looking for the same ideas and concepts. We buy a home, flip it, and make a profit. Or, we buy a property, rent it to someone, and generate money. Rarely do people consider other options or types of properties that could be more beneficial to them.

This is where the subject of today’s article comes in; HMOs. If you have no idea what this stands for, then you’ll soon learn. This piece is a simple guide to one of the many property investment ideas out there. You may find it makes for a smarter investment than the traditional approach.

What Is An HMO?

HMO stands for a house in multiple occupation – which probably doesn’t do a great deal of explaining for you. Essentially, this refers to any type of property that’s occupied by more than one person, with the occupants not being strictly connected with one another.

With a regular house, you might have multiple occupants all from the same family. However, in an HMO, you have multiple occupants that are all paying separate rent fees to cover the full cost of living in that property. The best example of this is student housing. A group of friends get together, and they all pay rent to live in the house. Some might pay more than others, depending on how big their rooms are, etc.

Why Invest In An HMO?

You can already see there’s a subtle difference between an HMO and a regular home. The question is, why would you consider an HMO investment? What’s so good about them compared to other buy-to-let investments out there?

Well, it turns out there are lots of potential benefits you will see from investing in this particular type of property:

Can Charge More Money

The great thing about having multiple people living in a house and paying rent is that you can boost the rent price quite considerably. More people are paying, so they’re only concerned with their individual rent. For example, let’s say you have a house on the market for £1000 rent per month. Now, you may find an individual or family willing to pay this rent. But, if the same house was an HMO, you could easily bump the price up to around £1500 a month because you have multiple people all paying their own rent. To a house of five occupants, this is only £300 per month to each of them. Do you get the idea here? You can charge more rent because everyone is paying their own way.

Very Few Periods Of No Rent At All

With regular houses, you can go through a period where your property earns no money at all. This is normally between tenants when one moves out, and you’re looking for a new one. With an HMO, there are very few periods where you get no rent at all. This is because you’ve got multiple tenants to think about, not just one. If one tenant moves out, you still have rent coming in from the others. So, while you look for a replacement, your cash flow is still moving nice and easy.

High Demand For HMOs Amongst Tenants

There is also a very high-demand for HMOs amongst prospective tenants looking for somewhere to live. This is because it’s deemed as a ‘cheap’ housing alternative for many people. We mentioned them earlier, and students are a great example of this. A student doesn’t have the money to rent a house or apartment for 9 months during the year. So, moving into a house with lots of other students – and splitting the rent – is incredibly desirable. The same goes for other types of people all looking for more affordable accommodation in this modern climate. As a result, the demand for your property will be high, meaning you never have to worry about not finding tenants. Plus, going back to the first point, you could increase the rent even more because demand is so high and it’ll still be cheaper than the alternatives for tenants.

 

How Do You Invest In HMOs?

The previous points have highlighted a few key benefits of investing in HMOs compared to more traditional property types. As such, you might be keen to get started and find yourself the ideal property. But, how do you do this?

Convert An Existing Property

The first thing you should do is invest in a property and convert it into somewhere for multiple occupants to live. This means buying a house and then making the rooms separate bedrooms for tenants. You’ll have to get locks and separate keys for each bedroom too, as well as ensuring that it’s big enough to accommodate everyone. Genuinely speaking, big Victorian houses are the best for HMOs because they offer lots of room and you can easily convert them for this purpose.

Check If You Need A License

Some types of HMO property require you to have a license, and some don’t. Properties that have more than three storeys need to get a mandatory license to operate as an HMO. The same goes for ones with over five tenants that make up more than two households.

Location Is Key

To get the most out of your investment, you should look for the perfect location. Personally, I think student accommodation is the best money maker in the HMO world, so you should buy properties near university campuses. The closer you are, the higher you can charge student tenants, meaning you make more money.

Know Your Responsibilities

As the landlord, you have specific responsibilities when you own an HMO. This includes things like installing fire and smoke alarms in every bedroom for every tenant. You also must provide suitable living conditions for the number of tenants present. As an example, one bathroom between 6 people isn’t suitable.

There you have it; a guide to HMOs. When you take a look at this idea, you realise it could be a very smart property investment. At the very least, it’s a change to the typical investments most property investors tend to make.

 

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