What is an HMO and should you be investing in it?
What is an HMO
You’ve probably come across the term ‘HMO’ before but what is an HMO and more importantly should you be investing in it?
Firstly, HMO (House in Multiple Occupations) is defined as “any property occupied by five or more people, forming two or more separate households” under the Housing Act 2004. In other words, HMO property, also known as a multi-let property, is property that is rented out to multiple occupants by the room rather than to a single person or family. This property investment strategy generates increased revenue and ROI for investors as they are able to charge per room.
Why should you be investing in HMO property
So, we’ve covered what is an HMO, but is it actually a profitable property investment strategy? Is it really worth it?
The quick answer is yes. HMO property investments can be incredibly lucrative. For example, a typical 5 or 6 bedroom HMO will generate £750 to £1500 net profit per month. The best part is you don’t need to own the property to get started. You can let the property on a rent-to-rent basis. This means that you rent the property from a landlord and then rent it out yourself you tenants to generate a profit. The secret to making an HMO property work is by creating and increasing space. For example, a large living room can be split into two to create extra bedrooms – allowing you to make extra money.
Things to consider before getting started
- Licensing: One key thing to consider when it comes to HMO property is some HMOs will require you to obtain a licence and some will not. This typically depends on your local council so best practise is – contact your local council and check if you require a licence for your property before getting started.
- Do your research: Like with any property investment, understanding the local area is key. It is important to know the needs/ demographic of your chosen area. As a rule of thumb – the most profitable HMOs tend to be occupied by students or young professionals.
- Rent to rent: If using a rent-to-rent strategy for HMO property, it’s worth noting that landlords normally require you to guarantee rent for a certain amount of time. You will therefore need to do thorough research before deciding if this is a risk you can afford to take.
- Property management: With great profit comes great responsibility. As an HMO investor, your responsibility increases. Managing a property will usually require annual gas safety checks, electric checks and fire safety checks among other responsibilities.
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