HMO verses standard BTL?

[KGeeson]

Afternoon everyone.

I was recently helping my parents decide how to invest in a property for their retirement, and although they were attracted by a HMO investment (because of the higher Yields available) I think they were a bit daunted by the added legal responsibilities and possible 'hassle factors' of owning an investment property with multiple tenants. In the end they settled on a standard BTL with a 5.5% Yield.

How do you all feel about the pros and cons either a HMO or a traditional BTL, and does anyone have an pearls of wisdom / advice they'd like to share?

 

[Nicholas Wallwork]

I think given their situation it sounds like they made a sensible decision for them... If they don't want to get too hands on and prefer a lower legal risk position then this was the right choice. Every investor invests for personal reasons and there is no right or wrong answer.

I personally invest for cash flow and adding value by development (not relying on the market). So I'll buy an office or old commercial building and convert it back to residential and usually some sort of large HMO or flat scheme. I think the HMO route is the best route for hands on investors as once you get to grips with the legislation, licensing and slightly higher management, the returns are far greater and in my opinion the risks are lower as your mortgage is covered by say 40-50% occupancy giving you a far higher void buffer than a single let...
Keen to hear other's views but that's how I invest in a nutshell...

 

[Michelle Barringer]

HMO are great if you have some experience and/or a property manager to deal with all the tennants - however if your parents are retired and want an 'easier' investment - std buy to let sound more sensible and less work

 

[KGeeson]

Do you think HMOs can be more expensive to purchase than a standard Buy to Let (because they need to have the scope / space to renovate and possibly expand, to fit the ideal criteria for a HMO property)? And then in addition, are suitable HMO properties harder to source than Buy to Lets?

 

[Izzie Aslam]

HMO are great if you have some experience and/or a property manager to deal with all the tennants - however if your parents are retired and want an 'easier' investment - std buy to let sound more sensible and less work

Hi

Personally speaking I think when it comes to Buy to Let or H.M.O's firstly you need to establish the following

- Current Financial position?

- How does your portfolio sit regards investment vs risk?

- Are you after higher returns or happy with basic yields?

- Long Term objectives vs short term

So the above are just some factors obviously more factors would be and can be considered. Looking at your blog, I agree with Nicks opinion as looking at the demographic/age profile of the client investing i.e retired investors, its better to go for Buy to Let as its a regular income stream followed by as safer investment than simply relying on government pension payouts. I have come across a lot of people who since the pension rules have been relaxed have taken lump sums out and invested them into a buy to let. The H.M.O schemes require a lot of research i.e location vs returns, followed by regulation and council approval and in some cases getting H.M.O mortgages approved can be time consuming as they have a stricter criteria often they need larger cash deposits, as the average loan to value ratio is slightly lower than for ordinary buy to let. Overall good decision!