Thinking about investing in property?
Heard about HMOs but not too sure what they are or if they represent the best investment strategy for you?
What is an HMO?
An HMO is a House in Multiple Occupation. This is property in which individual rooms are let rather than the entire house or self-contained flats within in it. A property is an HMO if:
- At Least 3 tenants live at the property and form more than one household
- Some or all facilities such as bathrooms, toilets and kitchens are shared by the tenants
It should be noted that a household can mean a family, a couple or an individual.
Large HMOs
Certain properties are considered to be large HMOs and these require a licence from the local council. A property is a large HMO if all of the following apply:
- The property is at least 3 storeys high
- There are at least 5 tenants who live there, forming more than 1 household
- The tenants share toilets, bathrooms or kitchen facilities with other tenants
Landlords of HMOs have additional responsibilities which they must adhere to. These are to reduce the risk of fire and to ensure that the tenants have decent facilities.
Landlords of HMOs must have proper fire safety measures in place and in large HMOs smoke detectors must be installed. Annual gas safety checks are required and the electrics must be checked every five years. The property should not be overcrowded and there must be sufficient cooking and washing facilities for the number of tenants occupying the building. Communal areas should be in a good state of repair and sufficient rubbish bins and bags must be provided.
HMOs as Investments
An HMO can represent an excellent investment if you are looking to generate regular income. However, they are not the best choice for everyone.
The demand for rooms is high and set to remain so. This is because there is a growing trend for single person households and many individuals simply cannot afford to buy their own home or to rent a flat. The highest demand for this type of accommodation is in towns and cities. So if you invest in an HMO in the right area, you should not have any difficulty in finding tenants.
As this type of property is rented by the room, the rental yields can be much higher than those for a single household dwelling. But HMOs require additional investment to meet the regulations and have higher ongoing costs. They can often still produce impressive yields but if you are not a cash buyer it can be harder to gain a mortgage in order to purchase an HMO than for other types of buy-to let-properties.
If you choose to manage your properties yourself, HMOs are more demanding and so will take up more of your time. You can pay an agent to manage the property for you but this will reduce your profits.
Conclusions
The right property in an area of high demand could produce impressive yields but it must adhere to the regulations and will make significant demands on your time. HMOs are not for everyone but can be a successful strategy for many investors.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]