The Profit Potential in HMOs

A property divided into several units is known as a House of Multiple Occupation, or HMO. It is essentially a property occupied by several unrelated tenants, also known as a non-standard family unit. Although the specifics vary by council, the general rule defining an HMO is five or more individual tenants and a structure with three or more floors. For example, you might have a property located near a hospital with five bedrooms, so you rent each bedroom to a nurse and they share the kitchen and parlor. With a similar property near a university, you might rent to students.

The potential returns on HMO properties are significant. Rented to a traditional family with two parents and three children, the five-bedroom property just used as an example might rent for £800 per month. But rented as an HMO to five unrelated tenants for £275 per month each, your total monthly revenue for the property is £1,375. Another advantage is that if the traditional family moves out, your rental revenue drops to zero. If one or two of your tenants move out, you still have revenue to cover your costs while you find new occupants.

Now, consider a large property with enough space to create 10 or even 15 bedrooms. Finding a single tenant for such a property could be a challenge, but in the right location, finding a tenant for each bedroom could be much more doable.

Of course, you should expect HMOs to be more management-intensive than a single-family property because you are dealing with more tenants. But if you are willing to do the extra work and think creatively, the potential rewards may be worth the effort.

This does not mean that you can turn any multi-bedroom property into an HMO. There are also different regulations that apply to HMOs for issues such as fire safety and security that do not apply to a single-family buy-to-let property. If you are interested in exploring the opportunities of HMOs, start by contacting your local Housing office to find out what constitutes an HMO in your area and what the specific regulations and licensing requirements are.

With that done, you are ready to move forward. Location is key to HMOs. If you want students as tenants, the property needs to be near their campus. If you want to let to medical workers, the property needs to be near a hospital or other large medical facility. Typical HMO tenants are not likely to have their own transportation and look for lodging near where they work or attend school. They also look for nearby amenities, including shops, restaurants, and pubs.

Choose a property that will appeal to your target tenant. Consider the property layout, room size, communal areas, bathrooms, and kitchens. Keep in mind that working people looking for affordable housing will likely want a different lifestyle than young students.

Be sure your tenancy agreements and any house sharing agreements meet all the necessary legal requirements to protect both you and your tenants. Set and consistently enforce the rules so that all of your tenants enjoy a safe, secure, comfortable place to live. If you are letting to young people or students, consider asking for parental guarantees.

Investing in HMO properties takes some research and effort, but they can produce a very attractive return. Once established, they generate cash flow that can provide regular income for a long time.

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