How do you know what kind of investment property suits you best? There are no hard and fast rules to figure this out. But the following article can give you a glimpse at the distinctions between single lets and HMO properties.
Single lets are suitable for first-time landlords, because simple buy-to-let properties have more straightforward rules compared to HMOs.
As the name suggests, single lets only have one occupant or family per unit. This setup is ideal for newbies in the business. This way, you’ll deal with tenant issues in a manageable chunk and you won’t be overwhelmed with the number of people you are dealing with.
From an investment stand point, it’s easier to purchase single buy-to-let properties for their low upfront cost. Based on experience, its increase in value over time is also higher compared to a property modified for HMO purposes.
If you find that running buy-to-let properties isn’t suited to your skills or interests, you won’t have a hard time finding a buyer for single buy-to-let properties. These properties are very easy to sell, since they can be bought not only by fellow property investors but also regular folks looking for a house to live in.
Operating a single buy to let property, however, has its drawbacks.
When your tenant leaves, your income flow from the property stops; this will continue until you can find a new tenant. Aside from that, since you only have one tenant per property, you’ll get lower returns per unit.
The cons of single lets are the pros of HMO properties.
HMO landlords have higher profit margins compared to single let landlords, because you can charge on a per room basis rather than as a whole unit. For example, a 4 bedroom house is normally leased for £700. But if you rent the 4 bedrooms to 4 different professionals, you can increase the total income of the property to £1700. That’s a £1000 difference!
In single let properties, your income flow completely stops when the property is empty. This won’t ever happen with HMO properties. If one tenant leaves, you may experience a slight decrease in income, but the monthly flow of rental yield won’t disappear.
Now, let’s move on to the less desirable parts of HMO investment.
There are 3 big hurdles that HMO landlords have to face: strict regulations, huge maintenance demands, and expensive investment requirements.
It’s a fact among property investors that HMO properties have more health and safety regulations compared to regular buy to let properties. In addition to that, you’ll also have to secure the proper license from the local council before you can start operating a HMO in your area.
Welcoming more tenants in one property means that the house and the furnishings in it will experience more wear and tear. Naturally, you’ll have to deal with constant requests for repair or replacement of various items around the house. All these take a lot of work and patience to accomplish.
HMOs are expensive to put up whether you buy it or build it. It’s expensive to buy one from an existing landlord, because of their high rental yield. They won’t let go of their property, except for an amount which can match their current profits. Building one, on the other hand, is also expensive since you have to meet all building regulations.
You’ll need to be more committed if you want to invest in HMO’s because of the effort, time and money you’ll need to spend in this venture. But if you have the capital to pursue this business, the rewards are also very good.