Despite the COVID-19 pandemic, desire for buy-to-let HMOs is rising in the industry. This, as well as the surge in tenant demand, could be attributed to people’s new urge to live with others at a time when they may have been forced to isolate alone. As a result, increasing property developers and investors are looking to buy HMOs in recent months.
If you are interested in investing in HMOs (houses in multiple occupations), you need to consider whether now is the right time to buy and sell any potential pitfalls. In the property market right now, sales volumes are soaring, and property prices are holding steady. After weeks in 2020 of the property market being closed, and people now understanding what type of home they want to live in, this pent-up demand for property has finally started to explode. As we continue in 2021, this buyer appetite continues to climb. As a result, many investors, landlords and developers are looking to build their portfolios and take advantage of tenant and buyer demand.
Owain Thomas from the mortgage lender Foundation commented that “overall buy-to-let applications have risen.” His own company had seen a 46% increase in applications between July and August 2020, when the UK was first slowly freed from lockdown. These applications were from ‘less experienced’ landlords, who had three or fewer buy-to-lets. They also witnessed an increase in applications for smaller or standard HMOs of six or less tenants, with a 23% rise between August and September 2020.
While this surge in HMO investment was consistent throughout 2020, we have to consider whether investing now is the best move for 2021 and beyond. The first thing to consider is being thorough with research before making any investments. Properties should be a good investment now and have the potential to bring you a great profit in the future. According to BVA BDRC data, HMOs offer the highest buy-to-let rental yields. This property type yielded an average of 6.9% compared to 5.8%.
Owain Thomas suggests that the newbie property investor has potential in “the six or less occupant HMO sector, which can be a successful stepping stone into this part of the sector, which might be particularly interesting for those who have never owned an HMO before.” So will HMOs still be in demand from tenants as we continue through the global pandemic and beyond?
Thomas continues his assessment of this property type, stating that “even in the situation we currently find ourselves in regarding COVID-19, there is an expectation and anticipation that multi-tenant living is going to be required even more in the future, given where we are ongoing housing supply levels and demographic changes.” There will always be young professionals and students looking to reduce their costs by sharing a home with like-minded individuals or friends. Even with lockdowns in place, people are more willing to be ‘locked in’ with their housemates than living alone.
However, there are some things to be aware of when investing in HMOs and becoming a buy-to-let landlord. Student houses often require more maintenance and have increased repair costs. This can also be more time-consuming for a landlord who may want to check up on the property more often than usual to ensure it is being taken care of properly by the inhabitants. Each tenant also tends to have a separate contract, and you will need to spend more time vetting each person before they move in. However, it does mean that once one student or tenant leaves, you can find someone to occupy that space as soon as possible. You are renting the room and facilities, not the whole house to one singular group.
There are also more rules and regulations to follow as an HMO landlord. All bedroom doors must be fire doors, there has to be an alarm system, and if the property has six or more bedrooms, then the landlord needs to be licensed by the local authority and abide by rules that dictate the minimum amount of space each bedroom must-have.
If you want to find out more about HMOs, follow the link to Nicholas Wallwork’s free ebook: https://www.propertyforum.com/educationalebooks. Or, alternatively, you can watch Nicholas talking all things HMO in his YouTube video here.