HMOs benefit from the highest rental yields – FACT

Recently I had a landlord contact me asking me to manage his “fully refurbished” property. On meeting him at the property, I can only describe what I was greeted with as utterly disgusting. I’d go so far as to call this property a slum. I can assure you that it felt really good to let the landlord know in no uncertain terms that he should be ashamed of himself for asking me – or anyone else for that matter – to let his disgusting property. It was easily in the top 10 worst properties I’ve ever seen and it’s shameful that anyone could face the prospect of living in such a hovel. But unfortunately it does happen. It was a shocking reminder that actually, in the privately rented sector (PRS) slum landlords are more common than any legitimate and conscientious landlords would like to admit.

In better news, some new research from Leeds Building Society has born some really interesting data about HMOs that I wanted to share with you. In line with my views that HMOs continue to be crucial a healthy market because they offer affordable and viable housing stock, the report has shown that HMO yields have continued to outpace all other property investment types.

According to the research, HMO investors are averaging rental yields of around 6.9%, which is considerably higher than the average property rental yield of 5.8%. In our experience 10%+ yields are easily achievable, if you pick the right property in the right area.

There seems to be lots of people questioning whether buy-to-let is the right option for them given all the taxation and regulation changes that are impacting investor profit margins. But with yields this good, I’m still firmly behind investment – particularly in HMOs.

When weighing up the pros and cons, another big factor in the pro column should surely be demand? ARLA’s Private Rented Sector Report for March 2019 showed demand from prospective renters is still increasing. Prospective tenants registered with its letting agents rose by an average of 3% from February.  But despite this, new tax and legislative changes seem likely to deter new landlords from entering the market, which might drive rents up as a result. Although interestingly, according to the report, the supply of rental properties has also increased, which David Cox, Chief Executive of ARLA, had an interesting view on. He said that rise in the number of properties available at each agency “may be the first signs of the industry consolidating ahead of the tenant fees ban as agents either sell-up or merge.” I think that’s a bit of a leap to be honest.

The tenants fee ban is not in force yet and whilst some agents maybe scrambling for a solution, I think others will simply disband. I have heard of a to local agencies merging in Kent, so this could be an emerging theme as agents seek to drive down costs through economies of scale. I also think other agents will begin cutting costs, thereby reducing service and then losing landlords, eventually going bust.

For me, the PRS remains lucrative. There are lots of opportunities for investment in Medway with many new development opportunities rejuvenating previously run-down areas of the community. Just last week councillors gave planning permission for a seven-storey block of flats to be built in Chatham. The site is behind the Tap N Tin nightclub at the former Pentagon Motors location on the New Cut Industrial Centre, and will see 35 one and two-bedroom apartments developed. With access to the town centre and mainline train station, this is a prime spot for commuters.

But for investors looking to diversify their portfolios and move away from single-let properties, HMOs are 100% the way forward. It is proven that they will continue to take a lead role in a healthy housing market. And when you look at the quality of the HMOs we are managing, it’s easy to see why. This is one of our HMO properties in Strood – take a look at this beautiful refurb: Home-Share HMO in Strood.

If you an investor looking to move into HMO ownership, I’m happy to answer any questions. Whether it’s about  suitability or conversion, licensing or management, my advice is free. You can email me at hasan@home-share.co.uk or call on 07944 726676.

Hasan

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