Now that you have decided to pursue an HMO property investment strategy, the next step is to think about your tenants.
Are you in the market for a professional HMO or a student HMO? Both are very different beasts, as they say. Certainly, when it comes to where your HMO should be and how it should be decorated there isn’t a lot of similarities. Here, we’ll describe both types of HMO and what you can expect to receive in terms of yield and income.
As you might imagine, a student HMO is the less expensive of the two to decorate. That’s because:
- Young people won’t particularly demand a lot of their accommodation because they tend to go out a lot
- They will expect it to be budget-friendly
- Students aren’t renowned for their housekeeping abilities
Naturally, you will want your student HMO to be near a university or large technical college – definitely within walking distance, if possible. If not, then not too far away so that students can cycle or jump on a bus.
When it comes to attracting young professionals, you are really going to have to ‘up your game’ in terms of what you offer. That means ensuring en-suite provision, the kitchen has modern appliances such as a coffee machine, toaster, blender etc and there is a high standard of décor throughout. You might also want to hire a cleaner to come in weekly.
That’s because young professionals will expect high standards from their accommodation. They’ve done the student let thing and now they’re renting before they can afford to buy their own place. It’s not unusual to find double rooms in upmarket professional HMOs these days as couples rent while they save together.
Because they are young and usually single, your professional status tenant will probably want to be in town – or at least where the action is. And that means somewhere ‘sociable’ and ‘with a lot happening’ ie with plenty of restaurants, pubs and entertainment.
Yields and rental income
The type of yield you can expect from a student HMO can go as high as 18%. Last summer, upmarket estate agent Savills recorded this for high-spec student accommodation in the North West of England. A three-bed HMO, with three students, brings in a rental income of £1,300. The cost of the property itself is around £120,000.
Rental firm Howsy recorded average yields in university towns as 6.56% near the University of Leicester, 6.5% in Birmingham at Aston University and 6.41% near the University of Leeds.
Up to 15% yield isn’t unusual for a professional HMO but 12% is more typical, depending on location and spec. The National Landlords Association (NLA) recorded average yields of 6.5% in the UK between July and September 2019. That was across the board ie not just upmarket HMOs but professional HMOs in general.
There are more HMO landlords in Wales than elsewhere in the UK, according to the NLA. An existing six-bedroom property in Newport can be bought for £200,000 and refurbished so that each room has an en-suite. It will then be possible to rent out rooms at £450 a month, yielding around 15%.
Which one to choose?
Both HMO types are lucrative and can help you become the hands-free landlord you dream of. However, Sourced Franchise tend to focus on a professional HMO due to the income stability and profit margin. It’s less hassle because there is less maintenance involved and fewer void periods, ie students tend to go AWOL during the summer months. Some will retain their room but usually at 50% of the cost of when they’re there full-time.
If you’re in two minds over which type of HMO suits you best, then why not get in touch with our HMO specialists at Sourced Franchise? Our experts will help you make informed decisions that will boost your HMO portfolio, regardless of which strategy you settle on. To find out how Sourced Franchise can help you generate an income from HMOs, download your copy of our Sourced Network prospectus.