Considering HMO investments

Houses of multiple occupation (or HMOs) are properties which three or more people are renting who are not from one 'household' (for example from a family), but they share facilities like the bathroom and kitchen. Historically, they’ve been most common in the student rental market but more and more professionals and landlords are benefitting from the model. In London in particular, they are proving popular with young professionals flocking to the city looking for affordable accommodation.

For many landlords, this is the most attractive form of buy-to-let. Letting individual rooms within larger homes can bring in bigger profits, for example some properties which would have been rented as one family home can be converted into multiple rooms with five or six tenants, bringing in a stronger return on their investment.

HMO lending

Many lenders will not lend against HMO properties or those requiring major refurbishment. This may be because the property is not in a fit state to be let or requires a change of use. A growing number of commercial landlords are now turning old pubs into HMOs for student lets and taking advantage of the high yields achievable. A lot of work has to be done first, making it near impossible to get a buy-to-let mortgage. We often resolve this kind of situation at auction where a deal simply can’t be missed and short-term funding can seal the deal quickly and provide the funds and timescale to make the property ‘buy-to-let friendly’ so a traditional mortgage can be secured.

It’s also worth considering that, for larger HMOs (if the HMO has three or more storeys and five or more tenants using shared facilities), by law the property has to be licensed with the council. Licenses usually have to be renewed every five years and you can be fined up to £20,000 for renting out an unlicensed HMO, so make sure you talk to your local authority about what is required from you to avoid any nasty surprises.

Location, location, location

Think about the location of potential HMOs. Amenities, convenience stores and good transport links are all important for attracting tenants. In some popular locations, class 4, C4, or article 4 could be required because HMO’s may be saturating the area, this is more common in student areas where the percentage of house’s converted to HMO’s is higher than residential homes.

Deciding to pursue this type of investment requires a lot of thought and background work but the return on investment can be more than worth it. HMO rental yields are higher than more traditional buy-to-lets and recent figures show they increased by 9 per cent in the last quarter of 2014*.

Many properties suitable for HMO conversion appear on auction catalogues. We have a presence at hundreds of auctions across the UK and our lenders happy to chat through your HMO and finance questions. So what are you waiting for?