It’s no longer a secret that HMOs are a good investment. Over the last ten years, property owners have been converging on them like never before.
But are they still a good investment? The short answer is yes. HMOs have intrinsic features that make them excellent for any investor looking to make high yet safe returns in property. Here’s why you should consider them:
Tenants Demand Them
Tenants don’t like the traditional rental market with its high fees and extended leases. They want to move in and out of properties flexibly as their circumstances change. In the traditional apartment market, this was difficult. Tenants had to sign long contracts – usually 12 months.
But in an HMO setup, it is different. Often tenants can move in on a monthly basis because the owner knows that they can fill their slot rapidly if they move on.
HMOs are also in demand because of changing demographics. We’re moving from a situation where the average family size is coming down, so tenants no longer need large properties. Instead, they need easy-to-maintain apartments with enough space for perhaps one child at the most.
They Are Scalable
HMOs property investments are scalable. You can start your investing career with a property with four tenants and quickly grow it to properties with ten or more.
Working with a multi-unit builder is an option that some landlords consider. Often it is better to construct properties in prime locations from scratch instead of trying to tap into the existing market. This way, you can create accommodation that more closely suits the people wanting to rent it.
There Might Be Tax Advantages
Investors also love HMO properties because of the tax advantages. More of the expenses related to property upkeep may be deductible compared to a traditional rental unit.
Void Periods Are Less Damaging
Void periods of traditional rental properties are damaging because investors lose out on all income on their capital. But they don’t matter as much on HMOs. If you are renting out to ten people and one of them leaves, then you are still getting rent from the other nine.
Void periods don’t necessarily mean an empty property. Plus, you often find that you can fill them easily because of the high level of demand.
Yields Are Higher
Because renters all share the cost of the building and facilities, rental yields are higher. From their perspective, paying near-market rates for their accommodation is worthwhile because they are getting all the facilities that they want. But from the investor’s perspective, the individual capital cost per tenant is much lower. This means that the returns are potentially much higher.
For instance, suppose that you have a four-bedroom HMO in what was once a traditional family home. If a regular family was living there, you’d have to charge rent comparable to the rental market for family homes. But if four professionals live there, then you can charge rents similar to individual apartments. And that’s what can so potently increase your returns.