Over the last 15 years, the HMO market has been transformed and there has been a boom. The reason for the boom was, quite simply, that HMOs could generate far better returns than single home lets.
But as the market grew, regulations tightened. On top of the extra duties, obligations, costs and tax changes that affected every landlord, HMOs were subjected to additional health and safety rules, including these two in October 2018:
HMO landlords have a lot to know, do and stay on top of. And now, in addition to higher mortgage interest rates, HMO landlords are finding their profits dented further by rocketing energy costs. This begs the question, do HMOs still stack up as an investment?
There are two big benefits to letting a property as a HMO. Firstly, while HMOs will always be more time-consuming than single-let properties, the reality is that they still usually generate a higher profit.
Secondly, a change in tenancy in a single-let home often means you have a void period with no rent coming in. The benefit of having each room let individually is that if you have one room vacant between lets, the other rents should be more than enough to cover your costs until the room re-lets.
And there’s a potential bonus to having an HMO: because they are larger properties, they may have better scope for adding value through extending than a smaller single let and if you can refurbish and extend when you buy, you could increase the capital value substantially.
As with any buy-to-let, investing in HMOs should be seen as a long-term investment. Make sure you plan and budget well ahead for maintenance and repairs over time. Not only will that help you secure the best rental income, but it will also help protect the capital value, which should appreciate well over time.
If you’d like any advice about HMO investing, get in touch with your local Leaders branch who will be happy to advise.