LETTING & ESTATE AGENT

Why investing in HMOs could be the answer for Chelmsford landlords

Why investing in HMOs could be the answer for Chelmsford landlords

What’s the first thing that pops into your head when you think of shared living?

Retirement homes?

Student houses?

Ross, Rachel, Monica, Chandler and Joey from Friends?

Whatever thought comes to mind first, it’s easy to fall into the trap of believing negative media reports around Houses in Multiple Occupation (HMOs) in the UK.

Dozens of tenants packed into small spaces, damp, dirt and generally poor conditions and not a jot of focus on health and safety.

Horrendously, there are properties like this in the UK.

But legislation and tighter licensing of HMOs in recent years has gone a long way to rooting out landlords offering sub-standard accommodation.

And this means that professional HMOs for professional people are making a comeback, according to data released by Precise Mortgages.

The lender claimed just last week that 21% of landlords looking to buy in the next 12 months will be adding HMOs to their property portfolio.

That could mean greater returns for those landlords and some superb shared living properties for professional tenants.

 

HMOs in Chelmsford

 

Of course, HMOs don’t work everywhere.

But shared living investment in Chelmsford could be a good option for landlords.

The city’s proximity to London makes it a great option for young professionals looking to commute back into the capital for work, while employment in Chelmsford is high thanks to Broomfield Hospital and the city’s burgeoning retail operations.

Property prices, though, remain out of reach for many and shared living is both a great option and one this demographic is both used to and enjoy, with many having shared properties during university.

 

Why HMOs can be a solid investment

The best thing about HMOs is the multiple streams of income they generate.

While void periods can be hugely costly for landlords letting out properties on a single tenancy basis, when one person moves out of a six-bedroom HMO, for example, there are still five other tenants in place while a replacement sixth is found.

Yields for HMOs are generally higher, averaging 6.3% according to Precise Mortgages, but they do, of course, come with more red tape and greater emphasis on good property management.

 

HMOs and what tenants look for

As far away as it’s possible to get from the media’s portrayal of HMOs as ‘bottom of the rung’ living in the UK, shared living is a choice for many rather than a necessity.

Tenants place a value on the social aspect of shared living, particularly young, single professionals who are not yet at a stage in their lives where they wish to settle down.

They enjoy the flexibility of renting and if you can provide a great, shared living space more often than not, you’ll find great tenants wanting to rent it.

The modern professional HMO provides space, even in shared areas, contemporary décor and added extras like Netflix subscriptions and super-fast WiFi.

 

HMO licensing and regulations

Letting an HMO is not as simple as renting out a single-tenancy property and given their multiple-tenancy nature, they often require more intense management.

Changes to HMO licensing in 2018 mean any property which is home to five or more people who are not related, forming two or more households, is classed as an HMO and requires a licence.

Rules on minimum room sizes were also introduced, while HMOs are also subject to electrical safety checks every five years in addition to the health and safety legislation that applies to all private residential lettings.

 

Property management

With, potentially six to eight individual tenants living together, it’s important you take steps to effectively manage an HMO.

That means effective vetting of tenants to give you the best chance of seeing each one living happily in the property, paying their rent on time and getting along with each other.

Tenant turnover can sometimes be high with HMOs, but due to those multiple income streams we mentioned earlier, financially this doesn’t have to be an issue, while tenant demand for shared living usually means when one moves out, someone new is around the corner waiting to take their place.

Maintenance can be a higher cost with HMOs due to tenant turnover and the amount of ‘use’ the property gets with six to eight people potentially inside at any one time, while licensing and obtaining finance by way of a mortgage can sometimes be trickier with HMOs, too.

But if you can navigate your way through finance, management and regulatory demands, HMOs can produce a solid and robust income, as well as the added benefit of strong capital growth over the long term.

 

If you’re looking to invest in an HMO in Chelmsford, speak to us about how we could help you manage your property.