The Top Two Property Strategies That Could Dominate in 2025 (And Why)
After 24 years in the property industry, we’ve gained the experience to know what works and what doesn’t. Looking ahead to 2025, we believe it’s going to be a pivotal year. With almost a quarter of a century of investing behind us, we’ve identified two strategies that we believe will be essential for success in the year ahead.
Here are the two strategies we think you should implement in 2025, and why.
A property is classed as an HMO if both of the following apply: at least three tenants live there, forming more than one household. In addition, you share at least one of the following: a bathroom or communal kitchen facilities with other tenants.
The reason we think HMOs are an ideal strategy in 2025 is for the following seven reasons:
1). Tenant Demand Is At An All-Time High
In the second half of 2022, we experienced a strong demand from tenants demanding flexible, affordable housing accommodation. This demand continued into 2023 and 2024.
SpareRoom.co.uk has confirmed that demand for shared rooms is at an all-time high, while supply has hit a nine-year low. SpareRoom says, “UK room rents rose by 16% year on year when compared to Q3 of 2022, with the average monthly room rent hitting £721 – another new record. The average rent in both London and the UK as a whole is now at an all-time high.”
We expect the demand to pick up further in 2025, leading to higher rents which will help offset increases in monthly mortgages.
2). Council Tax Room Banding
Landlords have finally received a big win!
Previously, tenants in houses in multiple occupation (HMOs) that were single-banded were liable for as much as £1,000 a year each in council tax. It was widely reported that the Valuation Office Agency was approaching landlords of large properties and demanding multiple council tax payments.
Now HMOs will not be re-banded, and existing HMOs with individual banding should be removed by 1st April 2024.
Therefore, this will be a massive win for both landlords and tenants and will only increase the popularity of HMOs.
3). Rental Yields
Rental yields are an important factor for many investors. With HMOs, rental yields can be up to three times the yield of the same property as a buy-to-let (BTL), depending on the location within the country.
For example, if you take a three-bedroom house and let it to a family under one tenancy agreement, you may achieve £1,000 per month in rent (area dependent). However, if you rent those three bedrooms on an individual basis in an HMO at £650 per month, your rent is now £1,950 per month.
Here’s the game changer: build a rear extension and loft extension to add three more bedrooms. In theory, this would increase your rental income to £3,900 per month, assuming you can rent each room at £650 per month. However, this depends on the property you are looking to buy, renovate, and convert into an HMO investment. This is where research into your property's potential for extensions, as well as local rental demand and regulations, becomes vital.
4). HMO Mortgages
When we first started investing in HMOs over 10 years ago, there was limited choice when it came to financing. However, today it is completely different, and in our experience, it’s easier to obtain HMO finance. Following the rate scares from late 2022, it appears that rates have settled, and we are expecting to see mortgage rates fall in 2025.
We believe an independent mortgage broker is an important person for access to HMO finance. Your broker needs to completely understand what you are doing and what you want to achieve. For example, are you looking for a “Bricks & Mortar Valuation” or a “Commercial Valuation”? The biggest mistake investors make is assuming that all mortgage brokers are the same.
5). Reduced Void Periods
HMOs have less damaging void periods compared to BTLs. In a typical 6-bedroom HMO, if one tenant moves out, you still have five others paying their rent while you find a replacement for the vacant room.
We typically find that 3-4 rooms would cover the mortgage and running costs for an HMO, meaning the remaining rooms are your profit. Therefore, not only is your HMO likely to have fewer voids than a BTL, but it is also likely to be more profitable over the course of 12 months.
6). Renovation Costs
HMOs often require refurbishment and structural work to optimise the rental capacity of the property. However, most spending on HMOs may be regarded as a revenue cost, meaning it qualifies as either a corporation or income tax deduction. Capital items, which are added to the acquisition cost for capital gains tax purposes, are usually easily identifiable, e.g., adding an extension, knocking down walls, building an annex, etc.
Where work is a combination of capital and revenue and carried out simultaneously, HM Revenue accepts that a reasonable and fair apportionment is allowed. Therefore, it is important to have good records of any expenditure, summarised and receipted. Our suggestions would be as follows:
• Take photographs of any work carried out at its various stages • Ask your tradesmen to provide a breakdown on their invoices. For example, 'build extension' or decorate 'existing property' • Keep a copy of the property survey report
7). HMOs Are In Vogue
HMOs are very much in vogue at the moment. During our time within the property industry, we cannot think of a time when HMOs have been so popular with landlords and tenants. 20 years ago, HMOs were associated with Department of Social Security (DSS) tenants, called Local Housing Allowance (LHA) tenants today, or students. However, fast forward to now, and HMOs provide vital accommodation for working professionals and are considered socially acceptable places to live.
2). Commercial to Residential – (C2R):
We have been converting commercial buildings to residential (C2R) since 2013. If you see our socials, you will see this is one of our favourite strategies, and it can be a hugely profitable one at that!
The reason that we think C2R is an ideal strategy in 2025 is for the following 7 reasons:
1). Demand Shift
Many businesses are embracing homeworking since the pandemic; what were once thriving offices are now empty spaces. This has significantly reduced demand for commercial premises, while the demand for residential housing is at an all-time high.
Offices and retail buildings are often spacious and ideal for development into unique new homes, which have valuable sale or rental potential.
2). Quicker and Cheaper Process
In 2021, the Government made amendments to the Permitted Development (PD) rights provided for by the General Permitted Developments Order (GPDO). That included buildings within Use Class E (commercial, business and service) to be converted into homes, without the need for Full Planning Permission.
If you want to convert commercial property to residential homes, you now just go through a Prior Approval process and can expect a decision within 56 days and lower planning fees.
3). Revive the High Street
The high street has been under threat for a while. The High Street has already been a casualty of out-of-town supermarkets and internet shopping; however, it was hit even harder by the pandemic. This resulted in many local shops and businesses being forced to close that never reopened.
Converting empty high street commercial properties into residential homes is a way to bring people back into town and city centres and promote the regeneration of local communities and economies. People living in central parts of towns and cities create a greater need for local amenities such as cafes, bars, shops, and cinemas, which reinvigorate and restore life to our high streets.
4). Prime Locations
Many office spaces, retail units, and commercial properties are in central locations close to restaurants, parks, schools, and public transport links. This puts them in popular, prime locations for people who want to live in the heart of towns and cities, with everything they need on their doorstep.
5). Sustainability
The need to minimise the environmental impact of new homes has never been so urgent. Vacant commercial properties are brownfield sites.
Converting them, as opposed to building on untouched Greenfield land, has huge benefits for the environment. Investing in brownfield development projects reduces the need for greenfield development, helps protect wildlife, and reduces energy emissions. Small-scale projects to unlock potential and repurpose commercial properties are an opportunity for a far more considered, creative, and sustainable approach to property development.
6). Opportunity to Add Value
Since we have been working with commercial properties, we have been doubling, tripling, and in some cases quadrupling the value of the property by changing the use to residential. Prices of commercial properties are often more competitive compared to those of residential properties in the same area. Because they’re in a prime location, converting them to residential homes means they have profit potential and provide an opportunity to add value.
7). Creative Builds
Converting a commercial property can be a chance to be creative and make the most of original features, or a blank canvas with the freedom to adapt the space to a unique design. Some of the most stunning, imaginative homes are born from commercial conversions because, when designed with thought and ingenuity, these desirable buildings have unique charm and personality.
8). Stamp Duty
Following the Autumn 2025 Budget, C2R was the real winner. With Stamp Duty Levy Tax (SDLT) increased from 3% to 5% on secondary residential homes, Commercial Stamp Duty remains unchanged, and you don’t have to pay SDLT, which is a real added bonus!
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