Investors have their eye on shared houses

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HMOs offer rich rewards for investors but managing them can be an onerous task. Sharon Dale reports.

Recent research from Mortgages for Business shows that landlords are increasingly favouring Houses in Multiple Occupation, HMOs, thanks to the lure of higher yields.

The research reveals that 28 per cent of the landlords are considering buying a HMO, up from 10 per cent six months ago. Investors looking to purchase so-called “vanilla property” - conventional houses and flats - has fallen from 83 per cent to 79 per cent.

HMOs are most popular to investors in UK cities with a high population of students and young professionals. Typically, the average rent for a house share room in the North is between £325-£500 per month. So a HMO property that is well managed can bring an average gross yield of 10 to 13 per cent.

These yields are much higher than standard single let rental property, which are achieving average yields of between four and eight per cent. HMOs can generate this significant increase in revenue because they are let to individuals on a room-by-room basis.

Rent will typically include a broadband service, utility bills and council tax. The individual bedrooms are rented as private for exclusive use, but most HMOs have communal areas, including kitchen diners and sitting rooms.

A three-bedroomed, single let property may typically achieve a gross rent of £650 per calendar month, while the gross rent on the same property will exceed £2,000 pcm as HMO.

It sounds enticing but while the rewards may be rich, managing a HMO is very challenging, with complex legal compliance requirements, mandatory and additional licensing, building regulations, increased governance and a high turnover of tenants.

Daniel Hill’s own experience as a HMO landlord led him to establish Multi-Let UK, which specialises in managing and letting professional house shares for other investors. It is the only company of its type in the country.

He says: “As a landlord, I understand how demanding the ever-changing regulation, legislation, new license requirements and rapidly changing market conditions can be.

“In a typical day, a HMO or multi-let landlord could be dealing with difficult tenants; chasing overdue rent; juggling finances; ensuring compliance with HMO legislation; redecorating a property or evicting tenants for non-payment of rent.” Here is his advice on successfully managing a HMO.

*Select the right tenants . Ensure you carry out thorough reference checks and secure guarantors and deposits.

*Don’t mix groups. Keep your HMO solely for either students, young professionals or housing benefit tenants.

*Maximise the rent achievable without compromising the facilities provided. Ensure you provide high quality accommodation with at least five rooms in the property, plus living and kitchen dining areas.

*Keep on top of maintenance. HMOs require more upkeep to maintain.

competitive finish because of the higher tenant turnover. There are also more call-outs due to the volume of tenants.

*Customer service is vital. Provide tenants with a high quality, 24/7 service. Treat them as “clients” and they will not only stay longer but will recommend you to friends and family.

*Bills. It is advisable to retain ownership and control over heating, electricity, water,

internet and TV and recover the cost through the monthly rental income. Tenants like the bills included approach as it prevents arguments with fellow sharers. Consider using a cleaner for the main living areas, again absorbing the cost into the rent.

*Keep on top of HMO legislation and regulation and be careful to comply with the law and updates to it at all times. There are special building control and health and safety regulations that apply to all HMOs. If a landlord fails to comply, he/she can be prosecuted and fined.

*Work with experts. Managing an HMO portfolio is a specialised expertise and a full-time job. So if you want to reduce the stress and time spent looking after your properties, consider using a specialist management firm