Finance News

Panellists Discuss the Profits and Ethics of HMOs

Em Morley - May 2, 2015

At the Property Investor and Homebuyer Show at London ExCel, from 17th-18th April, panellists debated Houses in Multiple Occupation (HMOs).

Landlords are struggling with decreasing yields on their single occupancy buy-to-let investments and are looking to HMOs for higher returns. But do investors have the knowledge and expertise to run HMOs ethically and still make a profit?

HMOs can make strong incomes for landlords, but they must be operated ethically for the tenants. Limited knowledge of HMO regulation can cause problems for both investors and renters.

So how do landlords make money whilst catering for tenants’ need of quality yet affordable housing?

Panellists Discuss the Profits and Ethics of HMOs

Panellists Discuss the Profits and Ethics of HMOs

SpareRoom’s Matt Hutchinson discussed the matter, stating that there has been a 33% increase in the amount of people searching for rooms in shared accommodation, but just a 0.3% rise in the number of people offering these rooms in the first quarter (Q1) of 2015, compared with Q1 2013.1

This indicates the huge potential for investors to move to a market with huge demand. However, this data also proves that attitudes are changing for tenants. Young people may be aspiring to homeownership, but this may not be their only reason for renting.

Platinum Property Partners has recently undertaken research with SpareRoom’s assistance. They found that for people in their mid-20s to early 30s, many do not want the restraint of a mortgage or location and would prefer to travel and work in different areas before deciding where they want to settle down.

So HMOs not only offer attractive yields, but also provide young people with places to live. Tenants who share can save lots more money than if they rent alone, meaning that they have more to put towards a deposit.

The demand for this housing from tenants is for high quality, affordable and well managed homes, not the poor standard, expensive and unsafe HMOs that are run by rogue landlords.

Investors should therefore educate themselves on HMOs to make strong returns and provide quality accommodation to tenants.

Panellist Ash Zuberi says: “An HMO portfolio can be a big beast and you have to learn to control it.”1 

Landlords should be aware of where is best to buy, what they should look for, how to refurbish if needs be, and how to fund their project. They may also need planning permission, should always be tax-efficient, and understand the legislation and licensing that applies to HMOs.

HMOs can deliver great returns, but demand hard work and compliance.

1 http://platinumpropertypartners.co.uk/articles/the-hmo-debate-can-shared-houses-be-both-profitable-and-ethical/