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Is now the time to invest in a HMO?

  03 Oct 2019

Houses of Multiple Occupation (HMOs) are leading the way in terms of rental yields. While last year saw HMOs make ripples in niche landlord circles, 2019 is the year this investment strategy is making a mainstream move. We’d be happy to talk through the details with property investors but here is Jezzards’ guide to HMOs and their investment potential for some background reading.

What is a HMO?

A HMO is defined as a building, or part of a building, where at least three tenants live, forming more than one household (a household is defined by the Government as either a single person or members of the same family who live together). A large HMO is classed as a property where at least five tenants live, forming more than one household. All HMOs have shared basic amenities in common, such as a communal kitchen or shared bathroom.

Why are HMOs suddenly on the property investment radar?

Research shows average rental yields across the private rental sector are at their lowest for nine years, although HMOs are bucking the trend. HMOs are currently achieving the highest average rental yields of all property investment types – with returns of 6.3% compared with the market average of 5.5%.

The premise is simple. Rather than rent out a four-bedroom property to one family paying one rent, a property can be rented out on a room-by-room basis, therefore maximising the rental income. Unsurprisingly, figures from Precise Mortgages in September revealed that over a fifth of landlords it questioned plan to expand their portfolio with the addition of a HMO.

Understanding extra implications & compliance

HMOs are not like your average two-bedroom buy-to-let flat. Landlords may need a HMO license to operate – some of these are discretionary while others are mandatory, linked to the number of tenants and even the height of the property. Jezzards is happy to advise on the local council’s license stance where you are thinking of starting a HMO.

Landlords of HMOs are also subject to additional legal requirements and regulations, which are being updated all the time. This doesn’t have to be a barrier to buying a HMO, however, as Jezzards’ full property management service will ensure your HMO is legally complaint from day one.

Financing a HMO

You may need a special HMO buy-to-let mortgage, and some lenders prefer to deal with landlords who have specific HMO experience or already have a license in place. There are also specialist HMO mortgages for those looking to refurbish or convert a standard property into a HMO dwelling by way of remodelling.

Jezzards: your HMO partner

There’s no shying away from the fact that HMOs are more involved, with the potential for a higher turnover of tenants and increased maintenance but the table-topping yields are a worthy offset. Because of their nature, many landlords run HMOs in partnership with a local letting agent, and Jezzards offers a full management service for convenience and peace of mind. We take care of the day-to-day running of a HMO, from local licensing, compliance and tenant safeguarding to rent collection, property inspections and check out.

If a HMO is a property avenue you’d like to explore, contact us for our professional advice on 03330 433 633



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