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HMO Investment Key As One Person Households Increase

Many buy to let investors are looking at HMO investment as the number of one person households increases.

Latest data from the Office for National Statistics shows that the number of one person households is continuing to rise, up 16 per cent to 7.7 million over the two decades from 1997 to 2017. This is projected to hit 10.7 million by 2039.

This trend has largely been driven by older age groups and as a result of greater numbers of children born in the 1960s and exacerbated by an increase in singles and divorcees.

The higher cost of living for one person households has also been highlighted, with those doing so spending up to 92 per cent of their income leaving little room to save. The biggest expenditure is housing costs including rent and bills.

Those living alone are also less likely to own their own home and therefore look for rented accommodation.

In addition, living alone also has implications that stretch beyond the financial burden. One person households have the lowest measure of wellbeing of all house hold types.

Whilst rented property can still be expensive for one person households, many are turning towards shared accommodation to help balance the budget and also provide company.

Buy to let investors who can offer quality shared accommodation are likely to reap the benefits the trend towards one person households with higher than average yields.

Co-founder of ideal flatmate, Tom Gatzen, commented: ‘The current cost of living is making it tough for many to get by, but shouldering this financial burden alone makes it all the more difficult.

‘While we are currently seeing an upward trend in single occupant living as a result of a growing population and social factors such as an increase in divorce rates, we are also seeing a similar increase across other living habits such as co-living.

‘While living alone is more prevalent across older age groups, we’re seeing a growing preference amongst younger generations to live in share households. This is not only helping them to address the financial issues head on but can also help with other disadvantages associated with living alone such as a lower level of wellbeing.

‘If properly considered and developed, this lifestyle trend could go some way in addressing the predicted uplift in those living alone over the next two decades and the negative impact that this could have on this segment of the population.’

Soruce: Residential Landlord

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Could HMOs turn out to be not the golden goose that investors hope for?

It’s a funny old world. When I was at my busiest, the type of properties that investors now actively seek out were considered sub-prime and to be avoided.

Specifically, these include student lets, lets to sharers, sitting/assured tenancies and Houses in Multiple Occupation (HMOs).

A corollary of the rush into buy-to-let is that many now see BTL as a way of augmenting their income.

Certainly in London most of the ‘total return’ on BTL has come from capital appreciation, but elsewhere income has become important, and possible.

But as yields have suffered, especially in the last five years off the back of unprecedented and market distorting low interest rates, those seeking income have moved into alternative asset classes.

Many would say student housing has been over-played. However, we all know that many renters are now forced to share houses – which has made HMOs look particularly attractive.

This has not gone unnoticed by the authorities, which have brought in a raft of changes, including licensing schemes.

The result will be a step-change in the number of HMOs being registered – but is there a hidden issue here that doesn’t seem to be talked about?

An HMO has historically been considered as being worth less than a standard residential property, being valued up to 25% less.

Once designated as an HMO the local authority would resist the change back to residential because the new rooms within an HMO each count towards their precious number of available ‘dwellings’.

Indeed I used to do deals for clients where we’d buy a centrally placed property with an HMO use, then buy another in a less salubrious part of the same borough, transfer the use and hey presto, a significant uplift on the more valuable property was realised when a reversion to straight residential was granted.

Recently, I sat in front of a highly placed government official with some responsibility in the area of drawing up new legislation, and asked if the same rules would still apply, i.e. that change of use back to residential after a new HMO licence would be resisted – and they weren’t able to answer.

Anyone thinking of venturing into this area should carefully consider their options, or at least ask the right questions.

Losing a large chunk of capital value to gain a slightly higher yield might just be too high a price to pay.

Source: Property Industry Eye

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When HMO’s go BAD!

Owning one or preferably several HMO (Houses of Multiple Occupancy) properties can prove to be an extremely lucrative investment strategy.

If managed correctly and fully occupied – then HMO properties are arguable one of the best property types to invest in.

Get it wrong, though, and you will find them unforgiving and potentially disastrous.

I have often said to the enthusiastic newbie HMO investor (often fresh from a training course) that HMOs on paper do look like great investments, but you really need to know your market before you invest and have expert management in place.

What the training provider often misses out of their well-formed courses is the social dynamics that exist within HMOs and the potential impact that can have on the bottom line!

HMOs are also subject to lots of regulation and changing legislation, if you don’t understand this and consequently fall foul, then the fines can be huge.

Here’s just a few examples of how and when a HMO can go BAD:

• Landlord prosecutions
Managing a HMO is far more complex than managing a simple buy-to -let. You must comply with HMO management standards and any applicable HMO Licence, and failure to do so can lead to colossal fines. Landlords need to be conscious of room sizing, amenity provisions and fire safety to name just a few. Not a week goes by in which I don’t read about another HMO Landlord being fined upwards of 20k!

• There’s a higher turnover of tenants in a HMO
By their very nature the tenants of a HMO are transient. Nobody grows up dreaming of settling down in a HMO – for most people this type of accommodation is temporary or a stepping stone, suiting a particular requirement at a specific time. Consequently, tenancies are shorter and void periods are more likely. If you get this wrong, you can find yourself with two or three empties and hovering around break-even point before you know it!

• Saturation
Understanding the local market is essential when buying an HMO, and it’s especially important to look out for any Article 4s that may have been imposed by the local authority restricting the development of further HMOs. This is a prime indicator that an area may be reaching saturation, and in such places you can quickly find yourself with declining rents and increasing voids.

• Parties often cause more damage than the deposits
HMO’s are synonymous with anti-social behaviour. The damage caused by just one wild party can be destructive – and any deposit barely covers the cost of the damage. And therein lies another problem when it comes to HMOs; rarely do young professionals – who tend not to throw wild parties and tend to pay their rent on time – opt for a room in an HMO. The result is, as the owner of an HMO, you can end up with potentially problematic tenants quite a lot of the time, with the typical tenant profile being students and low-income workers.

• One bad apple (or tenant) can upset the entire apple cart
I have seen on many occasions that a healthy 6 bed HMO can be reduced to a single tenant in a matter of days. Typically, one bad tenant can create so much disturbance in a building that the other tenants just leave without notice, leaving the Landlord with the challenge of removing the offending tenant and reoccupying the building simultaneously.

Source: Simple Landlords Insurance