HMOs – a boom in buy-to-let or a drain on resources?
09-06-2015
You can't help but notice that it's back to school time – the shops are full of school uniforms and pencil cases, the roads are busier and the parks quieter.
It's the same for university students as they gear up for another academic year. As for letting agents, they may have been busy over the summer months helping undergraduates find accommodation away from halls of residence. And this brings us nicely on to Houses in Multiple Occupation (HMOs).
It won't have escaped investors' notice – whether they are first-time landlords or old-hand portfolio owners – that HMOs have been stealing the yield headlines.
In fact, HMOs have recently proven to be the most profitable of property investments, outperforming standard single-occupancy buy-to-lets by 40%, according to Platinum Property Partners.
The property investment firm found that with a 25% deposit, HMOs achieved a total return on equity of 108%, compared to 77% for standard buy-to-let properties.
The never-diminishing supply of students, from within the UK and from overseas, and healthy returns means the appetite for HMOs among landlords is only set to grow.
The mechanics of an HMO let, however, are more complex and can place extra pressure on lettings departments and leave property managers exasperated.
There should always be room in your business to manage HMOs. To make the prospect a pleasurable one, bear in mind the following:
Guaranteeing the rent is important – very few students have an income and if they do, it's probably spent on textbooks, takeaways and tremendous nights out. It's wise to ask student tenants to provide a rental guarantor – usually a parent – who will guarantee to pay the rent if the student cannot.
A HMO will need to meet additional laws – as well as an annual gas safety check, the electrics will need to be tested every five years. Landlords of HMOs will also have to install and maintain proper fire safety measures, including smoke detectors in every bedroom and carbon monoxide detectors. Fire safety rules may also extend to fire doors, warning systems and fire escapes, and professional advice should always be heeded.
If the building has three or more storeys, five or more unrelated people living there, or there are two or more households under the same roof, the property will need to be registered with the council and a licence obtained before the property is tenanted.
The level of maintenance and emergencies may be higher – while many students take pride in their accommodation, not all of them do. Property managers and landlords should bear in mind that HMOs usually lead to higher levels of wear and tear, and it should be noted that there will be house guests and sometimes (*whispers*) the occasional party.
Accidental damage and emergencies should all be planned for in relation to the lifestyle of the tenants and the number students in the property. Inventories, check in and check out will, therefore, be crucial when a HMO is in question.
*Simon Duce is the Managing Director of ARPM Outsourced Lettings Support