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What you need to know about HMO investing

22/12/2020

With tenant demand currently high and property prices remaining steady, buy-to-let property
investment continues to prove popular. Owain Thomas of mortgage lender Foundation
reveals that buy-to-let mortgage applications from landlords with three properties or fewer
rose by 46% between July and August.

However, it’s not just regular BTL properties that are on the cards. Owain says that
mortgage applications for houses in multiple occupation (HMOs) of six tenants or fewer
increased by 23% from August to September. If it’s a sector that interests you, here are
some pros and cons to bear in mind.

 

The pros of HMO investing
The primary reason why HMO investing appeals to so many is, quite simply, its yields. It is
claimed that HMO rental yields can be up to three times higher than those of single-let
properties.

In addition, due to the nature of an HMO, investors in this type of BTL property will likely
have fewer periods of unoccupancy. Should one occupier move out, there should still be
others remaining in the property and paying rent. The same applies should one tenant
default on rental payments – with others still paying, this will cushion the blow.

Finally, demand is ever-strong for HMO properties. UCAS data reveals that record numbers
of 18 year olds are applying for university places – and the student sector is a popular choice
for HMO landlords.

 

The cons of HMO investing
Despite the benefits, there are some downsides to investing in houses in multiple
occupation. One factor to consider is the red tape around such properties: landlords of HMO
properties must comply with a greater amount of legislation and planning requirements than
landlords of single-let properties.

As a result of COVID-19, many lenders have paused HMO mortgage applications, making it
harder to apply for funding, and there are also fewer letting agents that will work to rent out
HMOs – and even fewer who will also manage such properties.

With startup costs potentially high, and the resale value of HMOs unlikely to increase
significantly, there are many reasons why some landlords may wish to avoid this sector.

HMO investment can be incredibly successful for some, but as with any type of investment,
risk vs. reward should be carefully considered before putting a plan in place.

 

Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The
marketing materials are not intended to provide financial advice nor promote any individual
financial products.

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Mortgages

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