HMO Property Designs on the increasing demand for houses of multiple occupancies and why the best deals are in the Northwest.
For those new to property investment, the sector’s complexity and susceptibility to economic and social influences may seem riskier than they’d like.
House prices are still rising, with some experts warning of the likelihood of a property crash in the not-too-distant future. But increasingly, there is a different option for landlords and investors in the form of HMO (house in multiple occupation) properties.
There are excellent investment decisions to be made, particularly in certain regions of the UK. Before we look at the specifics of why we suggest investing in the Northwest of England in particular, let’s break down how HMO property investment works.
Seeking out HMO properties for sale can lead to high yields.
An HMO is a property rented by at least three tenants, who must be from different households who all share facilities such as bathrooms and kitchens.
For investors in buy-to-let property, rental yields are the all-important factor in deciding on the type of property to add to their portfolio. And this is where HMO properties tend to come out favourably.
Investing in an HMO property will generally give the landlord higher yields than if they invested in a standard buy-to-let property. According to research from consumer insight agency BVA Group, landlords can expect an average rental yield of 7.5% from an HMO.
This is hovering at around 1.5% over the average rental yield for property investors, and this gap is getting wider. Between the first quarter of 2020 and the end of the first quarter of this year, the gap has widened by 0.6%.
As well as the strong potential for high rental yields, investors can also benefit from multiple income streams. The tenants sign up on separate agreements, which lessens the possibility of both arrears and void periods. If one tenant leaves suddenly, for example, there will still be income from at least two others while they’re replaced. Compare this with a typical buy-to-let that could be empty for weeks or months with zero income for the investor/landlord.
What does investing in an HMO property entail?
Investing in an HMO is more complex than the standard buy-to-let investment. This is down to the increasing number of regulatory standards and legislation that investors must understand and comply with.
For example, special licences are necessary for large HMOs, which refers to properties rented by five or more people. Every local council in England and Wales requires a licence for large HMOs, and some demand licenses for smaller properties too. It’s up to the investor to know and understand this before they commit to a property.
HMOs also usually come with higher operating and start-up costs. Properties sometimes need to be reconfigured, and all furniture, decoration, maintenance and letting agent fees must also come under consideration by the investor.
The sector is on an upward growth trajectory, which is set to continue, particularly in certain areas. Property investors should consider whether their region of interest fulfils the drive for HMOs – for example, whether there are students in the area or whether the predominant demographic is young professionals.
The basic property price should also impact the decision. Buying a property in the Southeast for HMO purposes, for example, will eat more capital upfront than in the Northwest of England, which is where we focus our property choices at HMO Property Design. It gives investors the best yields possible, and through our unique investment schemes, it also removes the hassle from the process.
Which regions are the most popular for HMO property sales?
For tenants, HMOs are becoming increasingly popular too. In general, the way we all live is changing. While the family home will remain important for many, there is a growing number of people looking for different ways to live and work.
HMOs, give young professionals, students, and those not seeking a family unit a more cost-effective way of living where they want. And they’re likely to stay there longer too. Young professionals, in particular, are sticking with the HMO model for longer as affordability and convenience become the most important factors in their decisions on living space.
While some may still be concerned about how the pandemic impacts the residential property market, the signs are positive so far. Research from Barrows and Forrester shows that during the second quarter of 2021, there was a sharp increase in demand for rentals.
Major cities across the country report an average rental demand of 33%, compared with 23% 12 months earlier. This analysis covered 23 major cities and shows that demand is highest in Manchester, Newcastle, Sheffield, and Bournemouth.
Very few areas saw a drop in rental demand during Q2 2021, with just a few boroughs in London, Plymouth, Belfast, and Nottingham reporting this. In fact, London has probably suffered the most in terms of rental demand due to the pandemic, with investor attention shifting up north in large part.
HMO Property Designs focuses on Northwest England
At HMO Property Designs, our property portfolio is mainly based in the Northwest of England, precisely because there is not only strong demand for these types of property from tenants, but house prices are far more reasonable to start with. This, of course, maximises the profit for the investor.
We work differently from other property firms and offer a unique investment strategy for those who would prefer to experience the benefits of HMO property ownership without the hassle of finding the right property, ensuring it’s converted to standard and maintained on an ongoing basis.
Our proprietary investment schemes have been developed over many years of working with multi-let properties. We’ve refined and developed the best options for investors looking to make passive income and take advantage of the boom in HMOs.
HMO’s schemes generally bring yields above 20% every year and a monthly income of around £1,500. The property investment model we offer is ideal for experienced investors and for first timers. Here’s how it works.
How HMO Property Designs specialist investor strategies work
The investor buys directly from the vendor from a pool of properties we have sourced. Before exchanging contracts, the team at HMO Property Designs draws up a reconfiguration plan for the property, including the whole schedule and all costs.
HMO’s properties can be converted into HMOs with different bedroom configurations available. Every room is fitted with the necessary locks and health and safety measures to comply with regulations. Most of the investment deals we manage are for four-bed HMOs, which offer the following investor benefits:
- Gross rental income of about £400/week.
- A net profit of at least £1,100 and often more every month (at least £13,200/annum).
- If it’s a student HMO, there is no council tax liability.
- Ongoing profitable business from the very start.
- HMO Property Designs manages the reconfiguration and fitting out of the property.
- We also provide at least three tenants (usually four), all with deposits paid and references checked.
- The option of our property management sister company to manage it ongoing.
In this way, HMO Property Designs offers a reliable passive income for investors who want to maximise returns with little day to day involvement.