What Are HMOs And Why Are They Beneficial For Landlords?

HMO stands for house in multiple occupations and the UK government defines it as any house where there are: 

• At least 3 tenants living in the home, forming at least 2 households
• Shared toilet, bathroom or kitchen facilities between tenants

In simple terms, it’s a property that caters to shared living arrangements. You own it, but it is rented out to multiple tenants, bringing in numerous streams of income. This differs from a traditional rental property where your house/flat is rented by one household. 

Why Are HMOs Beneficial For Landlords?

Landlords are increasingly interested in HMOs because they have proven to be extremely advantageous from an investor’s perspective. If you’re a landlord who’s interested in maximising your investment, you should know that an HMO can give you the following: 

• Higher Profit Yields – Let’s say you’re renting a house to one household. You’re only charging one set of rent, but an HMO lets you charge rent to at least two households. This can be used to your advantage as it technically means you could charge each household (or tenant) slightly less than the average rent in your area. However, when you combine what they’re paying, it ends up being a lot more than what a tenant would pay for the property on its own. You’re making more money, but the tenants are still paying what they’d expect. 
• Fewer Down Periods – Every landlord’s worst nightmare is sitting on a vacant property for months. When a tenant moves out of your rental, the money suddenly dries up. And yet, you still need to pay property maintenance fees, etc. Having an HMO means you don’t have to worry about down periods at once. Sure, a tenant could leave – but you still have two more tenants paying rent every month. That’s enough to tide you over until you find a replacement for the third tenant. 

Overall, it’s a property investment that brings in more money and gives you a steady stream of income. 

How Do You Get An HMO?

Keep in mind that an HMO is a specific property class. You can’t buy a normal residential house and rent it out to multiple tenants. If you did this, you’d need to legally change the property type – which could mess up your mortgage. A lender will give you money to buy a rental property, but if you haven’t obtained a buy to let mortgage for HMO properties, they may prevent you from making the conversion. 

The best approach is to look for existing properties that are classified as HMOs. This way, you can get the right mortgage and have the correct property type right away. If you do choose to invest in a property and convert it to an HMO, be upfront with your mortgage supplier. Let them know of your plans and this will avoid any instances where you accidentally void the terms and conditions. 

In summary, HMOs are properties where multiple tenants live together but form at least two separate households and share certain facilities. They present huge investment opportunities for landlords thanks to higher rental yields and steadier income streams. If you want to take your property investment journey to the next level, this could be the perfect idea to consider. 

*This is a collaborative post.