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HMOs: a great idea or not?

Homes of multiple occupancy (HMOs) have gained traction as an investment strategy over the years and investors often ask my advice about whether they’re a good way to go.

In reality, HMOs would not be my go-to strategy, especially for new investors.  To make them work now, you really need to understand the supply/demand ratio in the area where you intend to buy.  You need to ensure if there are more people looking for this kind of accommodation than there is available.

Know your tenants

Nobody dreams of sharing a house with a bunch of other unrelated people - they only do so because they either can’t afford their own place or have chosen to pay a lower rent in order to save up for something.  Sometimes people who are working away from their main residence area for an extended period may look for an HMO near where they’re working for weekdays.

As soon as the reason for them making that choice is resolved, they move out.  This may be when they’ve saved a deposit to buy their own place, move in with a partner, decide to share with someone they know or are relocated back to their original location.  This means you may have to be more active in resourcing tenants than you would for a normal self-contained property.

HMOs as an investment strategy

HMOs as the definitive go-to strategy have been relentlessly promoted by all the major property training companies for 5 years + - so tens of thousands of investors are all focused on running an HMO strategy

Some areas of the UK are so overrun with HMOs that councils have introduced the Article 4 restriction, which removes the Permitted Development Right to convert a property into an HMO of up to 6 beds, to stem the increase any further.  If you’re thinking about getting into HMOs you need to check this situation out before going any further.

Maintenance costs for HMOs are higher for the excessive wear and tear that the property gets.

For smaller HMO's (up to 6 beds) those best returns that are trumpeted can only be achieved if all rooms are consistently let.  Invariably, running with just one room empty for a good part of the years reduces the return back down to that of a single let, but still with the additional headaches of running an HMO.

And finally …

HMOs can cross the line into serviced accommodation, but if you go down that route you’ll need to take into account the need to provide the ‘service’.  In other words, linen, towels, cleaning between lets, etc.  Guests will expect a much higher standard of accommodation and service, but also will probably be prepared to pay a higher price.

HMOs can still work in certain locations where demand is still high, but far greater discipline is needed now, compared with a few years ago, in selecting the right location to ran an HMO strategy.

My advice - do your research first.  Ideally, talk to people in the area who are already running or managing HMOs and maybe a friendly, local letting agent or two. 

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