An interesting new report has indicated that a growing number of landlords are looking to invest in HMO properties to improve their rental income.
A rise in investment in student property in particular has driven a 150% year-on-year increase in multi lets and HMO’s at Multi-Let UK.
In addition, Multi-Let’s sister company Portfolio-Builder.co.uk has seen a 300% yearly rise in investors joining a waiting list for the acquisition of HMO properties.
Buy-to-let landlords have been hit by the additional 3% stamp duty surcharge and are likely to be affected further by changes to mortgage interest tax relief scheduled for next year. For those in London and the South East, vanilla lets are simply not producing enough yields.
Daniel Hill, Managing Director of Multi-Let UK, believes that letting a single property to a number of tenants can boost total rental incomes. Hill said, ‘experienced investors are recognising the opportunity to raise the monthly rent earned from a property by housing multiple occupants, all of whom pay rent separately.’
‘The tax hikes have forced landlords and investors to review their portfolios and look at ways to boost rental income and protect profits. The beauty of HMO’s is that the rent does not need to be raised because the profitability of multiple tenants is much higher than comparable, standard buy-to-let property. Usually, landlords rent a property on the basis that one person or household is responsible for paying the rent, even where there may be a family of five residing in the property,’ he continued.
Demand for HMOs rising sharply
Continuing, Hill noted, ‘HMOs are more complex to manage as they can require licenses and generally need more maintenance and repair. Despite this, they can be very profitable. For example, a three-bedroomed, single let property in the Midlands may typically achieve a gross rent of £650 per calendar month for a family. It is usual that, once converted, the gross rent on the same property will exceed £2,000 pcm as HMO. This represents a significant profit opportunity for buy-to-let investors who have the required expertise to generate sustainable returns in this increasingly competitive market.’
‘Many standards properties can be successfully converted to HMOs with the introduction of C4 building regulations. If a high quality refurbishment is undertaken, the property can attract working professionals in the right location, who are prepared to pay more for a shared property, with a superior finish. Luxury ensuites, large TV’s premium kitchen appliances and furnishings are the type of features that help to generate a high yielding HMO, where the market conditions accommodate,’ he concluded.