Letting out a property can be a lucrative business for those with a keen eye for investment opportunities. An HMO or a house with multiple occupations is a good investment option because of many reasons. You get the advantage of a higher yield due to multiple income streams and sustained demand by students and young professionals looking for affordable accommodation. However, setting up and managing an HMO is anything but easy. Some tips on how to make your HMO experience glitch-free:
Take Care of the Licensing Requirements
The first step in becoming an HMO landlord is to obtain a license from your local council. This license is needed for every property you own and is valid for five years. The requirements for getting the license differ from one council to another and may be difficult to obtain. Currently, you need to obtain a license only if five or more individuals, not belonging to the same family, reside in the property. You should also know the restrictions on the room size that depend on the age and number of occupants. Unless you are confident that you can fulfill the terms and conditions of the license, you should not buy a property for establishing an HMO. You can get advice on compliance from Abode, a leading HMO letting agency in Manchester.
Verify That You Can Get a Mortgage
Getting an HMO mortgage can be trickier than for other rental properties. Even if you do get a lender to agree to a mortgage, you will likely have to pay a larger deposit and a higher rate of interest. According to Money, the maximum loan-to-value you can get is 75%. Many lenders refuse to lend to HMO owners, while others prefer to lend to only those with prior experience of owning HMOs and a robust portfolio. You may like to work with letting agents who not only can manage your HMO on a turnkey basis but also guide you through the mortgage process.
Learn To Deal with High Tenant Turnover
It is not unusual for an HMO to have a high tenant turnover, especially when the tenants are students or young professionals living in rented accommodation for the first time. While a high turnover of tenants is sometimes inevitable, the extra work and cost of replacing them should not discourage you. You need to keep in mind that in an HMO, you have the comfort of having rental incomes from multiple tenants that ensures a high degree of financial stability. You can reduce your tenant turnover by choosing a premium location for the property, upgrading the quality of the rooms and the common facilities, ensuring prompt maintenance, and choosing tenants of the same profile to reduce the inevitable friction.
Investing in an HMO can fetch you handsome returns that are invariably far higher than that of single-let properties. They also give you a more stable cash flow. However, you need to be actively involved in finding new tenants, maintaining the property, and ensuring you meet the statutory compliances. Alternatively, you can hand over your HMO to a letting agent to operate and manage it on your behalf.