What kind of HMO is best for me?
To work out the best HMO investment for you, ask the following questions –
- What is my available capital?
- How hands-on do I want to be with this investment?
- What geographical area do I know best or am I prepared to research thoroughly?
- What is the most obvious tenant demand for that specific area?
The answers to these questions give you an insight into what opportunities will be best for you. And once you have more understanding of what your own limitations are, then you can choose from a variety of options –
- Student lets
- Serviced accommodation
- Local authority support accommodation
- Professional Workers
Student lets
The original model for HMO investment, student lets are a profitable and expansive market.
These do not need to be solely within university or college towns. Most students will be happy with a short commute offset against much lower rents. Investors consider locations on the outskirts of major cities, or residential neighbourhoods with excellent rail and bus networks.
The traditional student let model also comes with some downsides like increased wear and tear, and greater likelihood of defaulting due to the average age of the tenants. Buyers mitigate this risk by taking a larger deposit and asking for a guarantor on the lease.
This type of rental suits a relatively hands-on landlord that is open to regular maintenance and upkeep in return for 9-month occupancy rates and a large pool of interested tenants.
Serviced accommodation
Most common in cities and at the higher end of the quality scale, providing serviced accommodation has become a booming market. The globalisation of the average workforce has created an opportunity for some investors.
The wear and tear might be lower than with students (only because executives should be less likely to throw midweek parties!), but that doesn’t mean it is non-existent.
High end apartments attract a much shorter stay, and the regular turnover of guests can provide other headaches.
Depending on the portfolio, investors might employ
- in-house maids
- laundry services
- 24 hour on-call support
- security staff
This type of HMO is suitable for the sophisticated investor with deeper pockets and a healthy attitude towards risk.
Local authority support accommodation
This is an underserved market that is usually not available to individual investors.
Local authorities and health service providers can use an HMO property to house their patients or clients. Due to the nature of the HMO investment, they can control the common areas and provide support staff as required.
At Hoxton Property, we have secured some exclusive contracts with local authorities looking for this kind of development. That’s another benefit to joining forces with an organisation; better access to these off-market deals that you might not know about!
Most local authorities will do their own refurbishment, include their own specific services and pay you a regular passive income for the use. For most investors this is the ideal scenario – adding to the value of the property without any additional work. All you have to do is collect the rental income!
Professional workers' accommodation
Somewhere in the gap between serviced apartments and local authority support housing exists the need for worker’s accommodation. This could cover
- construction sites based in remote areas
- offshore oil and gas companies
- large organisations such as hospitals and sporting venues who need short to medium term accommodation for their employees and contractors.
These types of HMOs exist beneath the serviced apartment model in terms of spec and finish, but still provide a certain level of inclusive services such as
- kitchen facilities
- bedding
- towels
- toiletries
In this sector, investors should tailor the offering to the tenants’ needs. Local amenities such as shops or pubs may be more important that toiletries or tableware to some!
