Usually, for investors, there is a difficult choice to be made, what’s the best way forward and what makes the most sense – a HMO or an Apartment? We’ll discuss some of the pros and cons of each.
What is a HMO?
Often there will be the knowledge that a HMO is a high yield property type to invest in. Still, sometimes there’s confusion around what it is. HMO stands for “House of/with Multiple Occupancy” which means that it’s a property that’s been converted into a development with multiple tenants. It will often have a shared communal area and kitchen, possibly bathrooms. Still, in most cases, it’ll be a property with more than 3 “non-family” members living there in separate rooms.
HMO’s are often found in urban areas and provide tenants with the option of renting accommodation that is typically slightly lower than self-contained units such as apartments. It provides Landlords who would typically invest in multiple apartments a collectively higher yield and less in terms of overheads.
Apartment or HMO?
This is a good question that investors often ponder. Apartments provide a slightly lower yield than HMO’s will. However, they are typically much easier to manage. They also offer the added security of being part of a significant rise in property value. HMO’s can often be substantial investments, and as such, changes in the market aren’t often seen in property prices – yet apartments have seen a significant surge in value over the last 10/15 years due to changing market conditions.
HMO’s are harder to find too. At the Heaton Group, we specialise in HMO’s and Apartments. However, we have more success in developing apartments due to demand. While HMO’s are often sought after from investors and have significant value – often it can be the case that the capital an investor would place in a HMO would be better served across multiple apartments. This helps diversify an investors portfolio and gives greater fluidity should there need to be a sale in the future.
HMO’s require a different management style than apartments. In apartments, the tenants are separated from each other, and as such, there are fewer problems from a social perspective. HMO’s often have communal areas, and gardens and personalities can clash as a result. Sometimes this can cause high tenant turnover, which is problematic for investors/landlords – but the gains are often worth it.
To summarise, apartments are cheaper and easier to manage from a “hands-off” perspective. There has been a significant rise in property value; however, with apartments now in high demand. Tenant turnover is typically low (6-month minimum), and they’re usually in high demand areas. HMO’s, on the other hand, are expensive and harder to manage. The decision for the investor lies in if the higher yield is worth the increase in costs to manage the property. Our in-house lettings team manages both property types, so we have experience doing so and minimise our management costs as a result, but for the sole landlord, the yield would have to be high for this to be more viable than investing across multiple apartments.
To discuss your next property investment, please email us on firstname.lastname@example.org or call us on 01942 251 945