Of all the buy to let property strategies, HMOs consistently bring in the highest returns. Yields for these multi-let properties tend to be anything from 10 to 15% – and even higher in some cases, depending on the location and tenant type. That’s because they consist of a number of tenants living under the one roof.
There are strict regulations governing HMOs – especially with respect to fire regulations and bathroom provision per number of tenants. It’s also necessary to have an HMO licence from the local council to run such a property. Checks are carried out annually.
In some locations, there are Selective Licensing schemes, which means HMO conversions won’t be given planning permission. So, all of this must be borne in mind.
However, once up-and-running, a HMO can prove particularly lucrative. And being the landlord of an HMO doesn’t have to be a full-time job either. Here at Sourced, our franchise allows you to be hands-off but still in receipt of returns of around 15%.
Different types of HMO
Typical profit: £1,200+ pcm
The most popular form of HMO, student accommodation in university locations, such as all the main UK city centres, has been around for decades now. With so many students (Manchester, for instance, has 100,000 students and Leeds 70,000), there will always be tenants to house.
Student accommodation can result in void periods during the summer months, but many landlords allow the same students keep the rooms for the following year, at a reduced rent. These days it is possible to invest in purpose-built student accommodation. Traditional student properties are older properties with four or five bedrooms and a shared sitting room and kitchen.
Typical profit: £1,550+ per month
Some HMOs only allow professional single people to rent. These properties tend to be of a higher standard of décor and furnishing, with cleaners and garden maintenance etc. The rents are typically higher than that of student accommodation. Some professional tenant HMOs have en-suites. A 7-bed HMO could result in a net yield of 6.5% – 7%.
Rent to rent
Typical profit: £800+ pcm
Landlords who want a break from the tiring routine that running an HMO or two can result in, will often rent the entire HMO to a property investor at a BMV rent for from three to five years. That investor will then rent out the rooms for a profit and take care of the ongoing maintenance of the building. This is obviously a great HMO strategy if you don’t have much money to invest with to begin with. It’s not as lucrative as owning the HMO though.
Typical profit: £450+ pcm
This is a form of HMO where the tenants are sometimes there for simply a week or even a day. They are often homeless or vulnerable in some other way and have been placed there by a charity or the local authority. Obviously, hostels are a lot of work for a hands-on landlord and regular income isn’t always guaranteed (unless the local authority, charity or housing association pay retainer fees). A former hotel would work well as a hostel.
Lodgings shared house
Typical profit: £400+ pcm
This is when different people rent rooms in a large house, but do so on a short-term and continuous basis. It’s often the case that someone needs a room for work Mon to Frid and goes home at weekends. The landlord may also live in the house. A large Victorian/Georgian town house makes a good lodgings house.
To find out how Sourced Franchise can help you generate an income from HMOs, download your copy of our Sourced Network prospectus.