As a form of investment, Houses of Multiple Occupancy, or HMOs for short, provide great potential for high yields. I started my property investment journey with HMOs, and so I thought I would share my journey and highlight some key areas that require more thought.
As mentioned above, the first properties that my brother Daniel and I invested in were ex-local council houses with 3 to 4 bedrooms. We placed a small advert in our local newsagents, advertising each room to rent at an affordable £75 per week. By the first weekend we had already taken over 30 enquiries about these rooms and could have easily filled the properties 5 times over. The mortgage payments were approximately £300 per calendar month, with the cost of the 3 bed properties under £100,000. At £75 per week rent for each room, the monthly rental income from the 3 bed properties was nearly £1000, which was a very attractive return on our investment.
At that time I had little understanding of HMOs, but I quickly recognised that this was a way in which financial goals could realistically be achieved. My passion for property investment developed quickly from this point.
We identified an area of potential for HMOs quite quickly, and this target audience has expanded over the past few years – that audience being immigrants from Europe, especially Eastern Europe. These immigrants are well used to renting as it is more common in mainland Europe than in the UK, as such they are less adversed to the idea of renting single rooms within a multiple occupancy house. The population in the UK is also set to rise above 70 million for the first time ever, yet the amount of houses being built will not be enough to cover the increase in population, as such when demand exceeds supply, people are going to have to look at different ways of living – and renting rooms in HMOs is likely to be a major possibility.
Throughout my time investing in property I have noticed that there is a risk involved when it comes to HMOs, one of the largest being the suitability of the tenants. It is essential that the tenants are in a stable job with a steady income, thus minimising the risk of late or non-payment of rent.
A further issue with HMOs is the time that they take up in maintenance and possible repairs. With an HMO, the property is going to require maintenance and servicing each time a tenant moves out of one of the rooms – this is typically going to be more frequent than a single family renting a house for example. As such greater costs will be incurred in the process compared to letting a property in a traditional way.
Overall HMOs provide an extremely appealing opportunity for potential investors, especially with the enticing yields. However it is important to always be aware that there are risks with HMOs, as with any investments. As such the use of a dedicated property management service is highly recommended to ensure that you can achieve the highest possible return on your investment, whilst not having to worry about collecting the rent or managing repairs.