The advantages of HMOs vs. traditional buy-to-lets

How HMOs are rapidly becoming the preferred choice of astute landlords

One of the greatest issues affecting the UK property market is that too few houses are being built, forcing up the price of properties, and obliging landlords to pay more for traditional buy-to-Let residences.

Property investors are wisely looking for alternative housing opportunities which will maximise their potential rental yields and reduce overheads, such as maintenance.

The answer for many smart landlords is the rise of the HMO.

What are HMO properties?

Exterior of Railway Road, LeighAn HMO, or House of Multiple Occupancy, is simply a property where there are 3 or more tenants sharing communal facilities, such as a toilet, bathroom and kitchen. ‘Large HMOs’ are properties which are three or more stories high and with 5 or more tenants. These larger HMOs require landlords to obtain a licence under the Housing Act 2004. All HMOs must comply with current UK building regulations.

What are the main advantages of HMOs over buy-to-Let Properties?

Landlords and investors are choosing HMOs over buy-to-let properties for several reasons:

1) Property scarcity fuels increased rents

The first advantage of HMO properties is their potential for higher rental yields. A good example is student housing, where it is very common for undergraduates to share accommodation. In 2015 Universities and colleges in the UK welcomed a record number of new students – 409,000 of which came from abroad. This has lead to a massive increase in property investment in this highly lucrative area – estimated at a whopping £5.5 million for 2015 – more than double that of 2014.

This flood of new tenants requiring rental properties in popular university cities, such as Manchester, has driven up the rents that landlords can demand leading to a corresponding increase in rental yields.

2) HMOs eliminate the ‘all or nothing’ rent issue

Unlike traditional buy-to-let properties HMOs remove the danger of the landlord being left high and dry if a single payment is late. Where a property is being let to a single tenant non-payment of rent leaves the owner with nothing in hand, whereas in an HMO, with 4 people sharing, a single non-payment means that the landlord still receives 75% of the monies due.

This isn’t the only financial advantage of HMOs over buy-to-let. This division of tenants also means much less financial impact should a single renter choose to move out – the landlord is in the happy position of still maintaining their income from the remaining tenants whilst the space is advertised for let. In buy-to-let properties the landlord is earning nothing whilst a new tenant is sought.

Twist Lane, Leigh - Front3) HMOs are easier to find tenants for than buy-to-let properties

HMO properties in high demand areas, like Manchester, enjoy the advantage of being highly sought. Students, young professionals and those in reduced circumstances, such as people on benefits or asylum seekers, are a plentiful source of tenants.

Young professionals (often ex-students) are used to sharing accommodation and often find it difficult to buy or rent properties alone in popular areas. These types of tenant are often keen to rent rooms in HMOs in areas close to their place of work, popular amenities and nightlife.

Benefit claimants and asylum seekers also offer landlords a solid financial advantage for investing in HMOs. This category of tenants has the advantage of often being supported by government schemes. In many cases benefit tenants have their rent paid directly by local authorities or central government making them a reliable source of income.

4) Reduced maintenance costs

An additional advantage to HMO properties is the possibility of being able to ‘stagger’ any maintenance required. For example, unlike buy-to-let properties, if a tenant moves out then the landlord may only need to redecorate a single room – rather than the whole house – leading to reduced maintenance costs in a single ‘hit’.

Further to this aspect the landlord has the advantage with HMOs of being able to convert unused rooms into more income generating bedrooms. In HMO properties only a kitchen, bathroom (including toilet) and lounge are considered essential – additional rooms such as studies or second sitting rooms can be transformed into more bedrooms for tenants.

Take advantage of the HMO properties market today

With a full range of expert property management services CXG already has a number of suitable HMO properties available which would be ideal for investors and landlords looking to take advantage of this growth market.

To contact us simply use the ‘Register Your Interest’ button or call CXG direct on 01440 784159 now.

Register Your Interest with CXG Invest

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