There are many investment strategies in the UK property market that you definitely have heard of. Buy-to-let, serviced accommodation, commercial conversion, HMO, etc. We have chosen HMO to be our main strategy and there are several important reasons that make it a good strategy for us and probably for you as well.
What is an HMO?
HMO is the abbreviation for “house in multiple occupation”. It means a property that is rented out by at least three people who are not from one ‘household’ (for example a family). Unlike buy-to-let, where there is only one household and one AST (assured shorthand tenancy) agreement within one property, there is usually as many AST agreement as to the number of households that lives in the property.
Diversify the risk
Having more than one tenancy agreement means that you have multiple income streams instead of relying only on the rental from one tenant. If you have chosen the property at the right location, and that it has been refurbished to a high standard, your HMO should be filled easily. Even when one of the tenants moves out from the HMO, you will still receive rents from other tenants. It’s like having eggs lay in different baskets instead of relying on just one single income stream. Having multiple income streams within one property diversifies the risk tremendously.
Demand of HMO
HMO is popular in big cities, especially close to the university, town centre, working hubs, regeneration sites, where there is a large number of people who need to relocate for work or study purposes. When Covid first hit the UK, many HMOs suffered losses because most people moved out of crowded places and students went home for their studies and gave up their rooms. However, just like with every pandemic, once the first shock has passed, people still strive to get back to normal life. Many are now back to the universities and back to the office. Their preferences have changed though – rooms with their own bathroom (ensuite room) and property with extra workspace to allow home working has become more popular than before. So it’s actually unfair to say that the HMO market has been endangered by the pandemic, but rather become more competitive for the landlords who struggle to maintain their HMO at a high standard or offer more space for their tenants.
Like many other strategies – except for BTL – HMO is not a completely hands-off strategy. There are certainly a lot more issues that needed to be attended to compared to a BTL. However, do not let the hassles scare you. It is always manageable even when you invest from overseas, as long as you have the right knowledge and people to help you out with the management.