A House of Multiple Occupation (HMO) property can be a profitable investment, giving landlords the potential to maximise rental income. Many tenants look for HMO accommodation because it offers them greater flexibility, is more affordable, and a great way to make friends. For landlords, investing in HMOs means fewer vacancies, less chance of rent defaults, and better yields. Additionally, it can be easier to manage a rental accommodation with multiple occupants.
There is a wide range of people choosing to live in an HMO. More and more students prefer the advantages of shared accommodation. Also, many professionals want to live close to their work but don’t want to rent an individual property. Additionally, season workers usually prefer to live in an HMO property.
Typically, each tenant’s rent covers all the utilities, taxes, and rates. Because living in an HMO is less hassle for tenants, the demand for HMO accommodation has never been higher.
This article explains the many benefits landlords can enjoy from investing in HMOs. You will also find out why many students and professionals choose to live in a flat, house, or other accommodation along with other tenants.
What is an HMO Property?
HMO stands for House of Multiple Occupation. To be classed as an HMO, at least three tenants should live in the property who are not from the same family. Another feature of an HMO property is that facilities such as bathrooms, toilets, and the kitchen are shared between tenants.
If you are thinking of investing in a property to let as an HMO, it’s crucial to see what qualifies as one in your region. Local authorities have different rules and regulations that affect licensing, planning permission, and who can live in an HMO.
The Benefits of Investing in an HMO Property for Landlords
Owning an investment property to let to multiple tenants has several benefits. First, demand is high, meaning that it’s always possible to find tenants. With multiple tenants under one roof paying rent, rental yields are far greater. This also means that there is less impact on cash flow if someone moves out.
Let’s look in more detail at the advantages of investing in an HMO property.
HMO properties have greater rental yields
The most significant advantage of HMOs is that they offer fantastic financial returns to landlords. Most HMO landlords get three times greater yields than letting standard properties. Many landlords convert a single unit property, such as a three- or four-bedroom home, into an HMO to benefit from higher revenues.
Fewer rent arrears
Tenants seek out multiple occupation homes because rent is more affordable. This factor is also a significant benefit for landlords because tenants typically can afford to pay rent regularly. Additionally, even if one tenant falls into arrears, you still get rental income from the other tenants.
Fewer void periods
With multiple tenants in one property, landlords avoid the situation where rental properties are vacant for extended periods. Usually, in an HMO letting property, if one tenant moves out, the others remain. Although there may be a dip in rental income, you won’t lose all your income.
For example, suppose you rent a home to a family, and they decide to move. In that case, four or five people move out at the same time, and you must find new tenants. In an HMO property, that rarely happens.
Demand is high for living in an HMO property
In large cities, especially ones with universities, there is high demand for HMOs. As with all property investments, it’s crucial to carry out due diligence to assess market conditions and demands.
HMOs have tax benefits for landlords
Compared to single-let properties, there are greater tax deductions with HMO properties. Because there are more communal areas in the property, more costs are tax-deductible. However, it’s crucial to get professional advice on what you can claim under ‘Plant & Machinery Capital Allowances’. You can speak to a member of our Professional Services team about this.
The Benefits of Living in an HMO Property for Tenants
One incentive for landlords to invest in an HMO property is to consider why many tenants prefer multi-occupation accommodation. HMO accommodation is in high demand for people who are studying, temporary workers, or trying to get back on their feet.
Here are some of the advantages of living in an HMO property.
HMO accommodation is more affordable for tenants
The main reason why tenants look for HMO tenancy is that it’s relatively cost-effective. For an individual tenant, renting a room in an HMO property is cheaper than a single-let property. It makes sense that renting a room is less expensive than a whole flat.
Living in an HMO property is less hassle
Many young professionals and students choose an HMO because they don’t have to worry about bills. The advantage of living in co-shared accommodation is that it’s easier to budget. Expenses such as heating, council tax, water rates, broadband, and even electricity are included in the weekly or monthly rent.
Less housework to deal with
One advantage that HMO tenants usually mention is that it’s easier to look after the flat. Responsible landlords ensure that tenants have a schedule to take care of chores in the property. For people living in an HMO, this works out as a flexible arrangement. They can get on with their main work and pull together to keep the accommodation clean and tidy.
Co-living offers more companionship
Moving into an HMO is perfect for many people who enjoy living in a social environment. For students and young professionals, life in an HMO helps them meet new people and expand their social network. This opportunity is invaluable for single people or couples working or studying in large multi-cultural or cosmopolitan cities.
Letting an HMO Property — In Conclusion
HMOs allow landlords to maximise profits from letting multiple rooms in one property. Landlords who let HMO properties find that they get better rental yields, have fewer voids and enjoy more tax benefits.
Before investing in an HMO, it’s essential to have the right type of property to attract professional tenants. HMO properties should have the correct number of rooms and be of a suitable size. Also, the best HMOs have spacious communal areas—the kitchen, living room, and bathrooms.
Because managing HMOs can be more complex than a traditional single-let property, we advise that you get advice from professional estate agents who have expertise in letting HMO properties such as RIB. We can offer further information on legislation and regulations around HMO properties and can help you source tenants.
If you’re looking to let out your HMO property in London or are looking to a rent a room in an HMO, contact the RIB team today on the contact details below. Our expert lettings team can help you find HMO properties in Mayfair, Fitzrovia, Soho and other prime London locations and can advise landlords on leasing their HMO property. Our professional services team can also provide further guidance to HMO landlords around legislation, regulation and licensing.