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Why are HMOs Such a Popular Investment?

Find out why HMO investment is growing and why you should consider investing

Read on below or talk to an expert

What does HMO stand for?

An HMO is a property that is let to three or more tenants on separate lease agreements. There can be any number of tenants, but your property will be considered a HMO is the above is met and there are common areas that can be used by all tenants.

Most HMOs are properties that were previously used as standard houses and have now been converted, although there are some former offices or commercial buildings that have been converted to HMOs.

What is an HMO?

An HMO is a property that is let to three or more tenants on separate lease agreements. There can be any number of tenants, but your property will be considered a HMO is the above is met and there are common areas that can be used by all tenants.

Most HMOs are properties that were previously used as standard houses and have now been converted, although there are some former offices or commercial buildings that have been converted to HMOs.

Understanding HMO rental yield

A buy-to-let rental yield tends to be lower than an HMO rental yield. Figures differ because the rent of a simple buy-to-let is charged monthly, based on the property value. An HMO landlord usually charges per room, per week. The gross rental yield of an HMO is typically between 8% and 12% whereas a single let is around 5% and 7%.

Here’s an example: A four-bed house used as a single buy-to-let could achieve a rental of around £700 per month, the same property let as an HMO could bring in £85 per room per week. This would equal a monthly rent of £1,473 per month. Although HMO mortgages can be slightly more expensive, this is countered by the higher rental yield.

As a whole-of-market HMO mortgage broker, we will send you an illustration offering the best HMO finance rates available to you. By doing this, you get to keep as much of the rent received as possible which means more profit.

HMO lenders also offer 80% LTV (Loan to Value) mortgages. This extra borrowing can help you to grow your portfolio.

Things to consider

As with any financial product, there are pros and cons to HMO mortgages. Read on to weigh these up and decide whether it’s the right decision.

Pros

  • Strong rental yield when compared with buy-to-let
  • Lower risk of rental voids
  • Rent arrears have less of an impact as the rent is spread across various tenants
  • If the location is right, tenant demand for affordable housing is good

Cons

  • Managing the property can be more difficult
  • Start-up costs can be higher if conversion is needed
  • Running costs can be higher
  • Arranging HMO finance can be tougher

Get in touch

For more information, don’t hesitate to contact us on 01922 620008 or send a query via our online contact form to receive a call back from a member of our HMO team.