HMO Investing Guide – The Pros And Cons
HMO investing is something that a lot of people consider because the rental yields will be greater than standard buy to let properties. If you are considering this, this basic HMO investing guide will help you understand the pros and cons of this. By the end of this HMO investing guide, you will be able to make an informed decision regarding this investment because of the points laid out.
What Is An HMO?
Before getting to the pros and cons section of the HMO investing guide, you need to know what an HMO is. HMO is the abbreviation for houses in multiple occupation or houses of multiple occupancy. These are properties that are tenanted to 3 or more people who are not family and will share certain facilities such as the kitchen and bathroom.
It is important to note that HMO properties will have different rules governing them to standard residential rental properties. If you are seriously considering this form of investment, you should speak with the local HMO officer in the area you want to buy. They will be able to tell you more about the rules and regulations that you have to follow as the owner and landlord of the HMO.
The Benefits Of HMO Investments
The primary benefit of investing in an HMO is the fact that you will get a higher return on the investment. The rental yields from these properties can be up to 3 times higher than that of a standard rental property. This will ensure that any overheads you have for the investment such as a mortgage will be taken care of by the rental income you receive.
HMO’s will also generally have less rental void periods and the periods that are felt will have less impact on your cash flow. The reason for this is that when one tenant moves out, there will be other tenants who are still residing in the property. You will very rarely have an HMO that has no tenants as there is generally at least one person renting.
With multiple tenants, you are also less exposed to arrears. If one of the tenants falls behind on their rent, you will have other tenants who are still paying on time. In a standard rental property, this can cause serious financial hardship because the entire income from the property is on hold.
There are also some tax advantages to investing in an HMO. More of the costs related to this could be tax-deductible. Of course, you will need to speak with a financial advisor regarding this.
The last benefit of an HMO is the fact that the tenant demand is increasing as you offer flexible and affordable housing. The typical household size is also decreasing while the overall population is on the increase. This has led to a demand, in the right areas, for HMO’s over the standard rental property.
The Drawbacks Of HMO Investments
While there are many benefits to HMO investments, there are also drawbacks with the primary one being the additional legislation regarding this. There are more planning requirements and rules that you have to adhere to as an owner of an HMO. Standard rental properties will generally be more straightforward.
Another drawback is the fact that mortgages and other financing can be harder to obtain when you want to purchase an HMO. This is particularly important if you are a new landlord and do not have a track record of success. You have to tell any mortgage provider that you are going to buy an HMO when you apply for the mortgage as hiding this can cause the mortgage to be void.