10th January 2017

Considering a rental investment? HMOs can provide high rental yields

If you are thinking about investing in rental property there are many different options to consider. One option warranting serious consideration is investing in houses in multiple occupation (HMOs).

First time landlords are often reluctant to look at HMOs because they are daunted by the prospect of finding multiple tenants, managing the property and the additional legal responsibilities involved.

A HMO is defined as a property which is occupied by three or more unrelated people forming one household.  Usually a tenant will rent their own private bedroom but other facilities such as kitchen, bathroom and living areas are shared. In some instances they may have their own bathroom and/or limited private cooking facilities but shared living space and common areas.

Landlord Zone

In the Chester area, HMOs fall into two main categories: student house shares and professional houseshares.

New landlords can be put off by idea of a HMO property.  There is more involved in dealing with multiple tenants and it is a common perception that tenants could be more problematic than one individual or family on a traditional single assured term tenancy.  Landlords of HMOs also have extra legal responsibilities such taking additional fire safety precautions and gaining a licence.   A licence is required if a rental property has:

•    three storeys or more
•    is occupied by five or more people who form two or more households

Some local authorities extend licensing to other types of HMO, so it is always important to check with the appropriate local authority to see if any such conditions apply.  

With HMOs the turnover of tenants is typically higher than with a single assured short term tenancy.  They can also be subject to more wear and tear, complications with tenants and higher running costs.  However for those prepared to take on the challenge the returns can be extremely rewarding.  

For example, a three-bedroom terrace, which could command a monthly rental of £600 if rented to a family, could potentially be rented out as three individual rooms at an average rate of £450 per room including bills.  Generating a monthly total rent when fully occupied of £1350.  Even with higher running costs it is clearly an approach worth considering for landlords looking to maximise their return on investment.  Another advantage of professional house shares is that even if one tenant leaves, the likelihood is the others will stay so you will always have some rent coming in while looking for a replacement tenant.  Even with student rentals, if you take the time to find a group who are happy living together they can often stay on for their whole time at University.

We believe that demand for rooms in shared properties is likely to remain strong, rents have risen while wages have remained relatively stagnant so for many young people buying or renting their own house or flat is unrealistic.  It is also increasingly common for young professionals and young couples to choose to live in a HMO rather than rent a property exclusively so that they can save more towards a deposit for their own home. 

At Matthew’s we have extensive experience of selling and letting HMOs.  If you are considering this approach but are concerned about advertising your property, managing tenants, dealing with maintenance issues etc then we can let and manage your HMO property for you. 

Our experience in this area means that we can offer expert advice to landlords.  We are also in a position to act quickly to deal with any issues.  We understand the local market and have a great success record of matching tenants to properties and minimising any periods where rooms or properties are vacant. 

If you already own a rental property or are considering purchasing one then get in touch.  We will be happy to discuss your circumstances and offer advice and guidance on the services we can offer. 

Call our house share professionals , Jane Jones or Chloe Povey now on 01244 346226


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