A notable shift has been observed in the property investment landscape as numerous lenders report increased interest in Houses in Multiple Occupation (HMOs). Previously, the high maintenance and management demands of HMOs deterred many investors. However, the substantial financial rewards are now proving to outweigh these challenges.
A recent study by Landbay reveals that half of the landlords surveyed rely solely on their HMO properties or portfolios for income, highlighting the lucrative nature of this investment type. According to the National Residential Landlords Association (NRLA), HMOs currently yield an average return of around 6% in England, with some regions seeing yields exceed 9%. These figures significantly outpace the returns from standard single household rentals.
Factors Influencing HMO Success
Success in HMO investments is multifaceted. Critical elements include selecting locations with high tenant demand, setting appropriate rent levels, and effective property management. Despite the rising popularity of HMOs, traditional buy-to-let investments remain a staple for many landlords due to their established reliability.
High Returns Attracting Investors
The promising returns from HMOs are drawing more investors into this asset class. Landbay’s survey shows that 72% of HMO landlords operate through a limited company, a trend driven by favorable tax assessments for such entities. Despite the complexities of managing multiple tenancies, nearly half of the HMO properties surveyed are self-managed, with a notable third of these owned by landlords with portfolios of 20 or more properties.
Expert Insights
Rob Stanton, Sales and Distribution Director at Landbay, emphasized the enduring confidence in the HMO market: “Our survey results show continuing confidence in HMOs. Despite proposed rental reforms and local authority licensing schemes, the market remains resilient. With an ongoing housing shortage, demand is stronger than ever for decent and fairly managed house shares.
“HMO landlords have received a boost from falling utility bills. This means higher net rental which can make it easier to borrow a greater amount against the property’s value. In addition, council tax banding for individual rooms in shared houses has been reversed so HMOs are classed as a single dwelling as before.
“As long as investors do their research thoroughly before making the leap, HMOs can give great returns.”
Understanding HMO Properties
An HMO property houses at least three tenants from more than one household, sharing common facilities like kitchens or bathrooms. Larger HMOs, with five or more tenants, face stricter regulations, including minimum room sizes and specific licensing requirements.
HMOs appeal particularly to groups of friends desiring shared living arrangements with individual contracts, as well as to individuals new to an area or seeking affordable accommodation in desirable locations.
As the demand for flexible, affordable housing options continues to grow, the HMO sector is poised for further expansion, offering compelling opportunities for savvy investors willing to navigate its unique challenges.