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Top Tips for Investing in an HMO for Newbies

Top Tips for Investing in an HMO for Newbies

Houses in multiple occupations or HMOs are ideal for students, working bachelors, and even small families looking for economical housing solutions. When operated properly, HMOs can also be very good investments. It is because the rental yields are higher, and there is a sustained demand when the property is strategically located. Any property where multiple tenants can live can be an HMO, which means houses, apartments, halls of residence, or even a hotel with permanent residents can be HMOs, provided the local regulations allow. Some handy tips for those looking to invest in HMOs:

Focus On the Location 

If you don’t have a property and are considering buying one for an HMO, focus on getting the location right to attract tenants. Since most HMO tenants are unlikely to have cars, properties within 10-15 minutes of the center of the town, a university, the business district, or places where prospective tenants are likely to visit regularly. HMOs further off are likely to fetch lower rentals even if they are well-connected by road and rail. It is important to remember that even though most students and young professionals looking for HMOs want lower rentals, they will be unwilling to travel far, observes an Abode sales consultant.

Optimize the Size of the HMO

Since every house or dwelling unit has overhead costs associated with operating it and keeping it in good repair, you will need to find enough tenants that will make the HMO viable. It can be difficult to make a profit from a small unit with just three or four tenants. However, the same applies to a large one with a dozen or more tenants. According to people in this business, the ideal scale is around five to six tenants per house, as you can distribute the expenses like electricity, water, gas, taxes, etc. in a way that yields a healthy profit for you. Typically, you should aim to break even with your first three tenants, with the remaining contributing directly to your profit. Six tenants may be optimum as you don’t need to take planning permission. Also, most people don’t like to live in HMOs with too many tenants, says a BBC report.

Resist the Temptation to Mix Different Kinds of Tenants

The best profile of HMO tenants is young professionals. They can afford and are generally willing to give higher rentals for HMOs that suit them, tend to be more disciplined and regular with their payments. It can be more difficult to manage LHA/less referenced tenants or students because of payment issues and undesirable activities, and chances of damage to the property. Mixing the tenant types can make it even more difficult to manage your HMO due to differing expectations and chances of friction between the tenants.

Conclusion

You know you are doing things right if your investment in the HMO is fetching you a return above 12%. The best way of finding out the ROI is to divide your gross rent by the purchase price and the refurbishment cost. You can then work on various strategies to improve it by moving up the ladder in terms of décor, facilities, amenities, and better maintenance.

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