HMO vs Buy to Let
HMOs, or houses in multiple occupations, are discussed in this guide. Are rental properties with several distinguishing characteristics from more traditional buy-to-let investments? For example, three or more unrelated tenants live in separate bedrooms but share communal spaces like the kitchen and living room. In contrast, typical buy-to-let properties are leased to a single family, couple, or individual.
Buy-to-let properties are attractive investments in all regions and can serve any tenant, from working professionals to individuals claiming housing benefits and families. However, HMOs appeal more specifically to certain areas due to the types of tenants they target. For example, they find favour near universities for student groups or towns near transport links and amenities that professional commuters need.
There are also void periods to consider. A traditional buy-to-let may have fewer void periods, whereas an HMO tends to have more void periods. An HMO may also result in higher landlord maintenance bills than traditional buy-to-let models. This is because of shared communal areas such as bathrooms, kitchens and living rooms (where applicable).
Read below about HMO vs Buy to Let and make your decision:
Things to consider when opting for an HMO mortgage
On the topic of HMO vs Buy to Let from HMOs, landlords can collect more monthly rent than ordinary buy-to-let properties. Due to separate rental amounts for each tenant in an HMO, the overall sum generated is usually more significant once utility bills and maintenance costs are subtracted – making this investment even more profitable for owners!
Although HMOs require more effort and funds to set up initially than traditional investments, they also come with many benefits. For example, not only are furnishings typically included in the cost of an HMO property, but due to Health and safety regulations, landlords must fit every leaseholder’s bedroom door with locks for added security.
Although the Health & Safety requirements for these rental properties may be exhaustively compared to other opportunities, those who take on this venture will find it immensely rewarding when done correctly. As communal areas such as kitchens, bathrooms and living rooms are shared by multiple tenants, upkeep might require more effort than usual buy-to-let properties where households tend to look after their residences with more outstanding care.
Not only is there an additional time investment for obtaining a licence before purchasing an HMO property, but you must also look into whether or not the area your desired property lies in has any Article 4 Directions. This research can ensure that you are making the most lucrative and profitable real estate decision possible.
Not only do landlords of HMOs have to check references and create contracts for each tenant, but they also must brace themselves for the inevitable void periods–which are more likely to occur in places such as Bexleyheath that cater primarily to students. During summertime, an HMO property geared towards student housing may experience longer empty spells due to a lack of tenants. This process can be time-consuming and strenuous on any landlord’s resources.
HMO mortgages: Securing a mortgage for HMO properties is more complex than standard buy-to-let mortgages, and far fewer lenders offer them. These lenders’ rates and fees are typically much higher than other mortgages.
To receive the right guidance on investing in an HMO property in Kent, London or Edinburgh, talk to your experienced local mortgage broker today!
If you’re searching for a Welling and Pimlico mortgage, you’ll likely need to go through a mortgage broker instead of pursuing it directly from the lender.
A qualified broker can help discover deals not advertised publicly, thus providing you with more options than if you visited the bank.
Things to consider when opting for a standard Buy-to-let mortgage
On the topic of HMO vs Buy to Let :
- Standard buy-to-let properties: For landlords, rental investments require fewer hours to perform reference checks and sign tenancy agreements. An unfurnished buy-to-let property usually has less wear and tear than an HMO property. Furthermore, tenants are responsible for the cost of utilities which both saves money and cuts out extra jobs that can take up valuable minutes from your day! Despite this, standard buy-to-let properties generally yield a lower rate of return than those rented on an HMO basis; however, it’s worth considering how much free time you’ll gain with these more straightforward forms of investment.
- Buy-to-let mortgages: Buy-to-let mortgages are widely available at competitive rates. While they come with more stringent requirements than typical residential mortgages, they aren’t as complicated as HMO specialist loans.
HMO vs Buy to Let: Which is the Better Investment?
HMO vs buy to let Advantages of HMO Properties:
- Superior cash flow strategy compared to traditional Buy-to-Let properties.
- It offers the potential to replace your job more quickly if that is your objective.
- It allows you to choose between accommodating students or young professionals, but it is generally recommended to keep these groups separate.
- Flexibility to start small with properties featuring 4 bedrooms or scale up to larger properties with 10 or more bedrooms.
Planning permission may not be required in certain areas not subject to Article 4 regulations and with a limited number of bedrooms.
HMO vs buy to let disadvantages of HMO Properties:
- Increased risk and cost associated with managing HMO properties.
- Requires staying up-to-date with extensive regulations related to inspections, safety certificates, and building codes, including the installation of fire doors, fire blankets, and integrated fire safety systems for properties with three or more floors.
- HMO properties tend to experience higher tenant turnover rates, particularly among young professionals, which can make them more time-consuming to manage.
The presence of more occupants in HMO properties can lead to higher wear and tear on the property. - Planning permission is often necessary for desirable areas such as popular city centres.
- First-time HMO landlords may face higher mortgage interest rates, as most lenders prefer a minimum of 12 months of landlord experience typically gained from owning buy-to-let properties.
HMO vs buy to let advantages of Buy-to-Let (BTL) Properties:
- Easy to get started, as no prior experience is typically required to obtain a BTL mortgage.
- Provides an opportunity to gain experience in property investment through small refurbishment projects.
- Numerous managing agents are available to handle property management if you prefer not to self-manage.
- Abundance of online resources and information to assist you in navigating the process of setting up your first BTL property.
- BTL properties are considered a fundamental offering for mortgage brokers, representing a straightforward form of lending.
- Daily management can be hands-off once the property is rented and in good condition.
HMO vs Buy to Let: When comparing HMOs and Buy-to-Let properties, it’s important to note that there is no definitive winner. The choice ultimately depends on your own strategy and preferences.
If you’re starting out in the property market, conducting basic research on buy-to-lets and surrounding yourself with a reliable broker, accountant, and solicitor can provide a solid foundation. This experience will teach you a great deal about property investment, tenant management, setting up a company, and handling investments. You’ll become familiar with regulations and experience both highs and lows.
On the other hand, an HMO can accelerate your path to financial freedom, as it requires fewer properties to generate a substantial monthly income. However, diving into HMOs without prior landlord experience can be challenging. It’s often recommended to start with a buy-to-let property, learn the ropes, and then progress to an HMO. This sequential approach allows for better preparation and readiness.
It’s important to consider personal preferences as well. Some individuals may not be inclined to deal with the potential challenges of managing tenants in an HMO, such as conflicts and maintenance issues. In such cases, a buy-to-let property with a quieter, family-oriented tenant base might be a more appealing option.
Ultimately, deciding between HMO vs Buy to Let properties depends on your circumstances, goals, and comfort level.
