by Andy Graham
There’s been a chronic shortage of housing across the UK property market, and this includes the rental sector. With an ongoing need for additional housing, supply continues to be unable to keep up with demand. Due to the ongoing supply and demand imbalance, HMOs are a particularly great way investors can bring forward additional rentals to the market.
As the founder of The HMO Roadmap, host of The HMO Podcast and having established The HMO Community, I’ve seen the difference HMO investment can make in local markets all over the UK.
So, let’s talk about the many benefits of HMO investment for landlords and tenants alike and my top advice for investing in quality HMOs that improve local housing stock. I’ll also share an interesting case study from our community that comes with altruistic benefits and has been a great investment too!
HMO properties are one of the areas where as landlords and investors we can create much-needed new rental units, helping alleviate some of the pressures in the rental market. This is especially the case as the Renters Rights Act is expected to cause the number of rental homes to drop even further!
With modern tenants renting for longer, HMOs can be a great option for a range of renters. House shares tend to be cheaper, being surrounded by other people can help them feel less isolated, and it can provide more flexibility as young people are much more transient than previous generations.
With such strong tenant demand, the future of HMO investment looks positive. There’s an unprecedented opportunity to not just create quality housing but also to build a sustainable and profitable property portfolio over the long term.
Now let’s take a look at an inspiring case study that showcases a great example of using HMO investment to help with the housing crisis! This project is a six-bedroom supported living HMO for ex-offenders and patients by Chris and Cat McDermott of NW Living.
They purchased this vacant and non-compliant property back in 2018 as a six-bedroom HMO with just one bathroom. Chris and Cat renovated it adding five bathrooms. It was also in pretty poor condition with damp throughout, so the property needed quite a bit of work overall to not only make it compliant but to create a quality HMO.
After the renovation, they let the property privately through a HMO agent, and it ran relatively smoothly with 96% occupancy. However, three years later, they decided to change the property to a Supported Living provider they had established connections with after seeing the success they’ve had in transforming people’s lives.
For this project, the provider is a charity in Greater Manchester that works with ex-offenders or patients who are ready to be discharged from the hospital but require suitable accommodation. Hospital beds cost the NHS approximately £400 per day, so having appropriate homes outside of the hospital is crucial.
Having altruistic benefits, this new investment arrangement came with other tangible benefits as well, including a five-year lease with rent increasing annually. This ensures consistent monthly profits, while providing long-term security for the charity.
The provider also covers all utility costs and is exempt from council tax, which is especially useful if the property has individually banded rooms. Chris and Cat are responsible for the building's structure and heating system. However, day-to-day maintenance falls under the provider's responsibilities.
This change resulted in an increase in profits and a reduction in the time required from Chris and Cat. Purchasing the property for £177k and spending £83k on the refurb, they added £26k in equity and earned a 20% return on capital employed. This unique project shows how it’s possible to provide important housing for a specific demographic, while still being an effective investment!
Investing in HMOs really can help bring forward much-needed units in your local area. If you’re looking to start investing in HMOs or scaling your portfolio, here are some of my top tips for getting this investment right and helping to alleviate some of the pressures in your local rental market!
Every location can behave differently, so you need to become an expert on your investment location. Understand the competition and what your target demographic is looking for. This can help you create the right HMO, in the right location, with the right spec and ensure you’re creating a HMO that will be in high-demand.
Utilising creative solutions when designing your HMOs can help you offer a home that your tenants enjoy living in and might even allow you to stand out from the competition. You might also need to find ways to get creative with your investment strategy and the overall product and service you’re offering.
Ensure you can make changes to your HMO properties when necessary to help your properties remain successful and sustainable moving forward. Being agile will allow you to pivot when you need to. So, be aware of how you can adapt to any changes among tenants, the market and your investment strategy.
For more insights on investing in HMOs, sign up to our online learning platform The HMO Roadmap and gain access to lessons, resources and case studies. For more information, visit thehmoroadmap.co.uk.
