Have you considered adding a House in Multiple Occupation (HMO) to your property portfolio? It’s a property which is rented out to three people or more, each from separate households, and with shared facilities such as the kitchen and bathroom. The type of HMO people are most familiar with is student accommodation.
Nowadays, many landlords looking for ways to maximise yields and minimise risks are turning to HMO properties. Here’s five reasons why:
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Potential for higher yields
The main attraction of HMOs is that rental yields can be up to 20% higher than for a typical rental property. However, costs are also likely to be higher.
Factors you should consider include whether you need an HMO licence, the price of carrying out work to make the property compliant and higher maintenance costs due to increased usage and tenant turnover.
These can have an impact on your overall return but by managing costs carefully and taking advice from a specialist HMO mortgage broker you’ll give yourself the best chance to maximise your return on investment.
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Fewer rental income gaps
Letting each room individually in an HMO property means there’ll be less of an impact on your rental income when a tenant moves out because you’ll still have other tenants renting.
Although there is generally more paperwork with HMOs, careful investigation at the start of each tenancy will mean you can benefit from longer-term occupancy and a steady income stream.
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Less exposure to arrears
By having several sources of income from within the same property – with tenants paying rent for an individual room – you’ll be less exposed if a tenant falls behind with their rent.
Given the current economic climate and the need to maintain a secure income, many landlords view this as a major benefit of renting a property as an HMO.
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More attractive tax position
Unlike the majority of single-let properties, you can claim a tax deduction on qualifying items within the communal areas of HMOs.
A proportion of these costs are treated as an expense of the rental business. One advantage of making a capital allowances claim is that if this results in a ‘rental loss’, it can be offset against non-property income and potentially add up to a significant amount.
It’s important to take proper HMO advice from a professional tax specialist in relation to your individual circumstances.
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Growing demand for flexible, affordable housing
The private rented sector accounts for one fifth of all homes in Great Britain and it’s particularly popular with students, young professionals and single people.
Following the lifting of lockdown restrictions, it’s expected that the demand for room rentals will grow as people opt for the attractions of community living having spent the last 12 months in relative isolation.
Sharing with others is a viable and attractive option for many, with HMOs fulfilling their need for flexible, affordable living that reflects a modern way of life.
With rising costs of living and a growing population, more and more people are looking for more affordable ways to live so keeping rents at an affordable level for your target audience is important if you want to attract longer-term tenants rather than a series of short-term lets.
Vincent Burch is mortgage director of Vincent Burch Mortgage Services
