Houses in multiple occupation: should I invest in an HMO?

There are pros and cons to buying a house in multiple occupation and you should consider them all carefully before investing as Laura Noble, Licensed Conveyancer at Coodes Solicitors, explains.

A house in multiple occupation (HMO) is any property which has three or more tenants who are not a family. It has shared facilities, such as a bathrooms and kitchen. These differ from standard buy to let properties which usually house single people, couples or families.

IF you are considering investing in a buy to let property, you may have thought about whether or not an HMO would be a good option. There are pros and cons of choosing this type of buy to let.

Some HMOs require a licence and these are dependent on each local authority’s requirements.

In Cornwall, for example, a licence is required for any property which has five or more people forming two or more households and where there is some sharing of amenities, such as kitchens or bathrooms.

Before purchasing an HMO, we recommend you speak to the HMO Officer at your local planning authority. They are there to guide landlords on regulations and help them comply with the law.

What are the benefits of investing in a HMO?

As with any investment, there are both positive and negative factors to consider when thinking about buy a HMO property.

There is significant demand for larger occupancy properties in highly-populated student areas. The rental income from a HMO can also be much higher than from other buy to let properties. In addition, there can be some tax advantages to owning a HMO, as more of the costs incurred in setting them up can be tax deductible.

With increased rents, the demand for flexible, affordable housing is increasing. It is becoming apparent that the average size of a typical household is declining in larger cities and towns. At the same time, the overall population and the number of people looking to rent affordable properties is increasing. This combination is leading to increased demand for HMOs over and above single-room rentals in certain areas.

What are the downsides of investing in a HMO?

The legal requirements of being the landlord of an HMO are considerably more stringent than for a standard buy to let property. It can also be harder to arrange mortgage finance.

HMOs are usually rented by students or groups of young professionals who, typically, are looking for short-term accommodation. Tenant turnover can, therefore, be higher than it would be for a normal dwelling. That might mean you’re more likely to fill the property quicker. However, due to the length of their tenancy agreement, which is usually fixed at nine or 12 months, the tenants may be less concerned with maintaining the property. This could mean that you will have to put more time, effort and money into cleaning and fixing the property after they leave.

You should also consider that shared areas, such as the kitchen and bathroom, will have a much higher usage than in a typical house. There will be more wear and tear on carpets and other flooring, furnishings and appliances, which may lead to further expense.

There are many factors to take into account when deciding to buy a rental property. If you have found a suitable property that could operate as a HMO, Coodes Solicitors’ Residential Property team can guide you through the process.

For advice on HMO purchases or any other residential properties, please contact Laura Noble in the Residential Property team at 01326 213035 or laura.noble@coodes.co.uk