An HMO refers to a house in multiple occupation, which is always proportionate to the number of rooms available. In other words, it is any type of property that is occupied by more than one person, with those occupants not strictly being connected to each other. Of course, in a family home you have occupants within the same family. However, an HMO presents some difference as multiple occupants all pay separate rent fees to amount to the full monthly cost of living in the property. Student housing is an example of this as quite often a group of friends get together to all pay rent to live in a house during their studies.
HMO’s and regular homes provide subtle differences, but the main question is, would you consider an HMO investment? How do they differ from other types of property investment? How can you benefit from an HMO investment?
There is a multitude of potential benefits. First and foremost, generally more tenants equal more money. With multiple people living under one roof, all paying rent, means you can boost the rent quite considerably. As more people are paying, they are only focussed on what them as an individual must pay for rent. For example, if an HMO is on the market for £1000 rent per month, a family would be willing to pay these costs. Whereas, if this same property was advertised as an HMO, the price could exceed this amount and be pushed up to around £1500 a month because multiple people will cover the overall cost. For a house of four, this is only £375 a month each. Charging more rent is more achievable due to everyone paying their own way.
RW Invest, property investment specialists based in Liverpool state that,
“Investing in multiple properties and building a property portfolio can multiple your returns. One way to maximise returns is to convert a building into an HMO, or ‘House with multiple occupancy’, that way you can get more units for the same price.”
Void periods refer to the time in which a property is left vacant resulting in little or no rent. For a property investment to be successful this needs to be kept to an absolute minimum. This can be harder for regular houses to overcome as usually when one tenants moves out, it must be replaced with another. With HMO, it is less likely to experience periods where you get no rent at all, due to multiple tenants living in the same property. If one existing tenant moves out, rent can still be secured from the others, ensuring cash flow is still moving smoothly.
Demand drives the supply of HMOs, particularly amongst student housing as prospective tenants are motivated by this more affordable way of living. For students sourcing cheaper housing, HMO’s desirable as they serve as a perfect alternative to regular student accommodation from halls of residence. However, it is not just students that HMOs apply to. All demographics seek more affordable accommodation especially since escalating house prices and rental prices are increasingly alienating those wishing to reside in a new location.
