A House in Multiple Occupation (HMOs) is typically rented out to professional sharers and students. They are particularly popular in university towns and cities where there is high demand for this type of accommodation.
They are also fast becoming popular in parts of the country where more people are unable to get on the housing ladder and are therefore turning to renting with others to save money for a deposit. With a higher demand for this type of accommodation, investors are keen to enter the market and reap the rewards of more rent and higher yields.
However, whilst this may appear straightforward, there is so much more to building and managing a successful HMO portfolio than it may appear.
HMOs typically have between three and 10 bedrooms with communal areas such as the kitchen, bathroom(s) and living room.
A large HMO is at least three storeys high with at least five tenants who live there and form more than one household. They will share communal facilities.
Typically rent for a HMO in Bicester is £550 per double room, and can be as much as £1,650 for a three-bedroom HMO. This compares to £1,100 for a three-bedroom house. Gross yields in the area can be as much as 10% for HMOs compared to 4% for a two-bedroom flat.
Top tips
- Before you begin to build your portfolio, you need to be clear on your strategy, what you are looking to achieve from the rental property, what your finances are, how much you can commit, what you need to do to comply with regulations and legislation, and what your exit plan is
- To operate a property as an HMO you might require a licence. Licences are issued by the local council in which the property is situated and are valid for five years. A separate licence is required for each property you run.
- Licensing for large HMOs is compulsory
- Those new to investing in property should look to build their portfolio slowly
- The process of purchasing and managing a HMO property is complex with legal requirements and a range of regulations you must adhere to. Seek legal advice and ensure you understand all of your requirements – building control, health and safety regulations which apply to all HMOs
- You should check with the local council as to whether they have any specific regulations and licensing requirements you need to adhere to. Along with this, you may also need to obtain planning permission to change the use classification of the property. Therefore, it is very important that you seek legal advice before buying a property for multiple occupancy.
- It is very important to understand your budget and stick to it
- Location of the property is very important – students will want to be close to the university campus and professional sharers will want to be near to transport links and employment hubs
- The process for building and managing a HMO portfolio can be time consuming and stressful, so it can be advantageous to appoint an experienced letting agent to assist with the process. They can advise upon changes to regulation, collect rent, manage the day to day maintenance of the property and tenant queries.
- Provide good quality accommodation and ensure you keep up with the property’s maintenance
There are a range of mortgage products available on HMO properties from a variety of lenders, including those on the high street. Most products are available on either a purchase or re-mortgage basis to both individual and limited company borrowers. Interest rates on HMO mortgages are typically higher than a standard buy to let mortgage but you can currently get a rate starting from 1.49% from BM Solutions.*
Many lenders prefer borrowers to have experience as a landlord before they will consider an applicant for an HMO mortgage. There are only a few lenders that accept borrowers without any landlord experience. Therefore, it is advantageous to speak to a mortgage consultant before you set out on the process of purchasing a HMO, to find out what your mortgage options are.
*September 2017
By Michelle Niziol, CEO, IMS Property Group, an independent sales and letting agent, mortgage broker and property investment group. Michelle is also vice-president of ARLA Propertymark
Also published on Property Insider blog here
