HMOs / Multi-lets

Houses of Multiple Occupation

HMOsHouses of Multiple Occupation, also known as HMOs and Multi-lets, are a property investment strategy similar to Buy-to-let (BTL), whereby a property is purchased with the intention of being let to tenants, but in this instance, the property is occupied to multiple households and more than two people who share one or basic amenity, rather than just a single household in a BTL scenario.

An HMO household invariably comprises of several shared / common areas such as the kitchen, lounge and bathroom areas, along with numerous individual bedrooms. The overall quality and finish of the HMO property will be largely determined by the target market for the tenants and is usually broken into 3 categories:

  • Local Housing Authority / Low income tenants
  • Students
  • Professionals

The various target markets will also impact on the layout and facilities provided to the tenants, ranging for instance from fully self contained flats, to bedsits and simple lodgings.

HMO Licensing

An HMO License is required only if ALL of the following conditions apply to a household:

  • It’s at least 3 storeys high
  • At least 5 tenants live there, forming more than 1 household
  • A toilet, bathroom or kitchen facilities are shared with other tenants

Please be aware, that as well as an HMO License, if a property is to be converted to an HMO, planning permission may also be required for changes to the property or changes to the use of the property. Please contact your local planning department to obtain advice on planning permission.

The key point to note about HMO licensing is that it varies from council to council throughout the UK, therefore we advise you to check with your local council in advance before embarking on an HMO investment.

How to fund an HMO Property Investment?

Since this strategy is a long term one, it makes sense to use longer term finance to fund the purchase of these properties, such as Development Finance, Commercial Mortgages and also funding from an investor or Joint Venture (JV) Partner.

It is worth exploring the different finance options with a mortgage broker to establish which form of finance works best for your particular development project and the timescales you plan to achieve, as each option has different fees and charges which may or may not be viable depending on capital growth sums you are aiming for.

UK Property Investor welcomes HMO Joint Venture investment opportunities, both in terms of us either providing finance or expertise to the opportunity, so please get in touch if you have an investment opportunity you’d like to discuss with us.

HMO Benefits and Risks

The clear benefits of following an HMO investment strategy is that both excellent yields are achieved along with long term capital growth. HMOs are presently a huge growth area in the UK due to record property and rental prices, along with recent changes to housing benefits which mean that single people under 35 are now only entitled to a room in a shared house. Furthermore, some would argue that HMOs offer less risk and worry of rental voids and non-payment of rent, since even in the event that say 20% of the tenants pay late, due to the excellent returns of an HMO property, the 80% rent received on time will still more than cover all monthly costs and still provide a positive cashflow.

The risks of an HMO strategy are the time taken to initially fill the property and therefore upfront rent void, along with being able to achieve suitable income for each room to generate suitable positive cashflow; although these can be mitigated by doing sufficient upfront research. It’s important to note that HMOs invariably include all bills for the tenants including utilities and therefore these need to be factored into the total monthly expenditure as well as usual month costs such as mortgage payments.

Additionally, whilst HMOs can offer both excellent cashflow and long term capital returns, they can become labour intensive and demanding for landlords due to the time taken dealing with multiple tenants and overall management of the property. To provide maximum cashflow a lot of landlords opt to self-manage their HMO, but often switch this at a later date to a professional HMO Letting Agent if the property becomes too consuming of their time.

UK Property Investor works with a network of specialist HMO Letting Agencies across the country who are able to provide the entire management process to HMO Landlords and can willingly recommend one in your area if you get in touch with us.

HMO Yields

The potential yields achievable for HMO investments varies largely depending on the location of the HMO, due to the large variation in property prices throughout the UK, as well associated costs. However, from our experience and knowledge of the market, we would say that HMO yields can vary from 10% - 20%+ in best performing areas and well run HMOs.

How to find good HMO Property Leads

We have a network Property Sourcers / Finders and Estate Agents, providing us with a constant stream of qualified HMO Leads for either existing or potential HMO properties for sale throughout the UK. For areas of the UK where we are not currently actively investing, we are able to sell leads on to potential investors for a reasonable fee. If you are interested in hearing of HMO Leads which match your investment budget and geographical location/s, then please complete the form below:

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