HMO Property Investment is the way to go!
Successful property investment is what we do here at CXG. We advise, manage and handle every aspect of property ownership. Put simply, we just love property! And the latest area of property investment to emerge is the rapid growth in HMO (Houses of Multiple Occupancy) developments and conversions.
The reason for this fast growing phenomenon is of course obvious when you think about it. This country is in the midst of a ‘perfect storm’ when it comes to property. Just think about what’s going on right now:
- Rapid increase in population
- Very low rates of new building
- Difficulty in obtaining finances
- High deposits required for buyers
- Growing requirement for single occupancy housing
- Shortage of housing available
Actually the list goes on. So what is the answer to all these problems? It’s simple. Smaller, more affordable housing units. And in true fashion the market is responding rapidly to this ever-growing requirement. The front-runners in this new market are either building or converting existing housing stock to provide multiple occupancy houses and buildings to cope with this ever-growing demand.
Why should you consider HMO property investment?
So let’s be clear what we’re talking about here. Take say a property with 3 bedrooms and a couple of reception rooms. Normally this would be let to maybe 3 tenants sharing or one family. But if the 2 reception rooms are also turned into bedrooms and each of the now 5 bedrooms is let singly to 5 different tenants who share the kitchen/bathroom/communal facilities, then the possible income is increased considerably. If the property was let to the sharers or the family for say £750 per month, the 5 rooms could be let for £200 each making the monthly gross income now £1000 per month. That’s 25% more income per month! Now that is a good business model.
Covering the risk
But the good news goes on. Let’s say you lose a tenant or they don’t pay their rent. Well you’ve still got 80% of your income covered by the other 4 tenants. If the family or the sharers leave or can’t pay then you lose 100% of the income until they’re replaced, which is never good news for landlords. Voids in tenancies are expensive. Calculations vary but the return on HMOs is generally between 12-20%, a higher figure than normal buy-to-let returns which generally runs at around 6%. And that’s not all. Not only does the income per house increase and the financial risk decrease but there is less hassle because you have more tenants but less property to maintain and service.
What you need to be aware of
OK, so there are some potential downsides. This is the sector of the business that is best left to more experienced property investors. The deposit that you need to purchase the property may be higher as lenders do not as yet look as favourably on HMOs as on normal buy-to-let investments, and lending rates may be slightly higher too. Also HMOs do attract some regulations with regard to things like fire doors, Health and Safety and smoke alarms, and a property with more than 5 tenants will require a license from the council too. But with good advice from people like ourselves who possess years of experience in all matters relating to property investment, you will find all these issues can be handled with confidence.
Where should you invest?
So where should you invest and just who wants to rent these properties? The main market is undoubtedly students and this market is growing strongly. Cities like Birmingham, Nottingham, Coventry, Glasgow, York, Oxford and of course London all have large and often growing student populations who all need housing at affordable prices. In fact any large town or city with a student population will yield plenty of potential tenants.
But there is also a rapid growth in the number of young professionals who are wanting to live in multiple occupancy housing for a variety of reasons, but mainly to save money as flat and house sharing becomes ever more expensive. That enables them to save more money for a deposit for a future house purchase. This demographic group are again often in cities, with Manchester, Southampton, Nottingham, Coventry and Portsmouth being areas of high demand, but most major conurbations will have plenty of eager young professionals keen to rent rooms and save themselves some money.
And finally there are plenty of potential tenants amongst those who are less fortunate, namely those on benefits or asylum seekers. But do not dismiss these groups as they are usually supported financially by government schemes and payments which guarantee your income. And HMOs will be the way that this group will be increasingly housed in the future as the benefit cuts imposed in the latest Budget mean that expensive government housing subsidies becomes a thing of the past.
So HMOs are definitely a great way forward if you plan to build sustainable income from property or diversify your current holdings. At CXG we can help you fulfil your plans with advice on where and how to buy and we can even manage everything for you. Call us and have a chat or register your interest here. We’re here to work with you and assist on your HMO journey.