House of Multiple Occupation (HMO) and Serviced Accommodation (SA) are two of the most popular and highest-yielding property strategies for landlords these days.
Both have their pluses and minuses, of course, but to find out which potentially will suit you best read on. In this post we look at income, management and regulations of both HMOs and SAs.
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Income streams
When you sign up an HMO tenant on a short-assured tenancy, this will be for a period of at least six months. It could be longer, but at least you are assured of income for that set period of time. And, with an HMO, that rent will be multiplied by four or five, depending on how many rooms your investment property has.
With SA you are offering short-term lets, along the scale of Airbnb or accommodation for short-term contract workers eg three weeks. This means that with such a high turnover, there will, inevitably, be void periods. To cover these, the rent will have to be higher. But it also has to remain competitive for your location.
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Management of both
With the bigger number of tenants, HMOs are more time-consuming than a straight-forward buy to let property, ie instead of one lease, there are five. The more people in the property, the more likely you’ll need to attend to maintenance, repairs etc. This can all be done by a letting agent though, for a price.
The management of a SA can also be handed over, although the high turnover of tenants makes it more complicated to run. As a result, fees for hiring a company to look after a SA apartment can be quite costly. There’s a lot of referencing to check, as well as cleaning schedules to be organised and, often, concierge services.
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Types of tenants
There are several different types of HMO strategies to choose from. You could, for instance, open a student HMO, or accommodation for young professionals. There is also the possibility of taking on Local Housing Association tenants.
With SA your typical tenants tend to be holiday makers, business people or contract workers in, for example, construction and who aren’t usually onsite for more than several weeks at a time.
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Regulation of HMOs and SAs
There are far more regulations around HMOs than there are SAs. But that’s only because HMOs have been around longer and there has been time to see what needs to be checked. There are tough fire safety regulations, for instance, including holding regular fire drills and safety doors in larger HMOs. EPC standards are another, together with minimum room size stipulations and rules on toilet provision per tenant numbers. Then there is the Article 4 Directive applied by many local authorities in cities, where there are already a lot of HMOs.
Now that the SA market has been around for a number of years and is definitely here to stay, more regulation is being mooted by politicians as well as accommodation watchdogs. New rules may come in covering where it’s possible to locate an SA. There may also be a whole raft of safety legislation and even tax regulations. The point is, no-one really knows and that makes the whole SA market a little risky at this point in time, particularly if you’re looking for a long-term property investment strategy.
If you are interested in learning more about HMO and SA strategies, get in touch and our expert team will be here to help, providing support and guidance every step of the way. To find out how Sourced Franchise can help you generate an income from HMOs, download your copy of our Sourced Network prospectus.
