Recent research has shown that over half of landlords are planning to invest in a House of Multiple Occupancy (HMO) in 2020, so we figured out why landlords’ next investment must be HMO.
According to research made by the mortgage lender Paragon, over a third of landlords will be looking to invest in HMO. This is the highest number of landlords looking at HMOs since Q2 in 2017.
It is not a surprise that landlords see HMOs as a good investment opportunity. They tend to offer much higher yields and, with the UK population outgrowing the housing supply and rent getting progressively more expensive, an increasing number of young professional tenants are choosing HMOs over self-contained properties.
Here are benefits of investing in an HMO:
Higher Potential Yields
One of the main reasons that attract investors to HMOs is the potential to earn higher yields. Rental yields for HMOs can often be three times as high as self-contained units. According to the buy-to-let index by the lender Complex, HMOs were earning average rental yields of 8.9% in Q3 2019, which is impressive considering that the average yields got by single let properties in the same period were 5.7%.
Less Risk
The biggest problem with single-let properties is that you’re relying on renting your property to one tenant only. With HMOs, These risks are minimised with HMOs, because you rent it out to several occupants. For example, if one of your tenants wants to leave, you can still rely on the income being generated from the other tenants. The risk of void periods is also not that big with HMOs and it’s easier to replace a tenant if someone leaves.
You Can Upgrade Your Portfolio
It’s well known that the more properties you own, the more income you will generate. However, while this is true, the logistics of owning multiple properties can be challenging, as you’re struggling to manage multiple properties at once. HMO is a great way to solve this problem as you’ll be saving time and management costs as your income will be coming from one property.
The well-looking HMO Market
The affordability and flexible nature of living in an HMO is very attractive to a number of tenants, and as renting in the UK is becoming more expensive, more young professional tenants are choosing HMOs over single-let properties. Plus HMOs tend to be more stretchy to market fluctuations that other buy to let models, as the low cost provides more of consistent demand.