Being a property investor, it is likely you know how HMO’s can make for great investments. Not only can HMOs offer one of the highest rental opportunities on the property market, but the demand for affordable housing within cities has never been higher, so you’ll never have trouble finding tenants.
HMOs are an attractive option for property investors, however they do come with risk. To make sure the HMO strategy is the right investment for you, we have rounded up the pros and cons!
Pros of HMO Investing
1. High Cash Flow
HMOs have a high cash flow because of the premium rents tenants will pay for a quality property, which includes bill prices in rent. As there is a rise of energy prices, HMOs are a great option for tenants who will have their bills included.
2. Better Yields
HMOs offer rental yields up to three times the amount of regular property, which makes them a great investment strategy for property investors. However, it is important to remember that the property location, condition and interiors can affect the rental prices.
3. High Tenant Demands
HMOs located in city areas attract young professionals who are looking for affordable accommodation for work. At the NPP Group we have found there is a high demand for HMOs near public transport links for inner city workers and a demand for work from home living space.
4. Fewer Void Periods
As previously stated, HMO tenants are most likely to be young professional tenants who want affordable accommodation close to the city. So even though one of your tenants may be vacating, it is highly likely other tenants will remain, so you won’t lose your rental income overnight.
5. Property Value
The property value of a HMO is often valued higher than other properties on the same street. This is because you are renovating the property to have a larger living space.
Cons of HMO Investing
1. Red Tape
There is a lot of red tape and property legislation you have to overcome to make your HMO strategy work. You should speak to your local council or planning officer for support.
2. Limited Capacity
There are a large number of properties that cannot be converted into HMOs. In order to make the strategy work, you will need to source a property that is large enough to offer space for every tenant. In some areas, there is limited opportunity for HMOs and properties that are ideal for HMO command higher prices.
3. Resale Value
The capital growth can be limited on HMOs, as you are only likely to resell to property investors or landlords. This should be considered before making a firm decision on property strategy.
4. Higher Start-Up Cost
HMOs have a much higher startup cost than buy-to-lets or social housing. This is because HMOs require more furniture, and need to follow legislation such as fire regulations and environmental health regulations before the council will approve your HMO. There is also a higher start up cost for interiors. HMOs, unlike other strategies, require interior furnishing or dressing to appeal to tenants and allow them to move straight in with just a suitcase.
Overall the HMO property investment strategy is a great, cash flowing asset for those investors who have a higher cash deposit. Although there are some risks involved, they can easily be overcome with the right conversations and help from a team of property investment experts.
