Is the HMO business still worth it in 2024? 

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The world of property is constantly shifting, and Houses in Multiple Occupancy (HMO) are at the heart of it. As our cities grow and the need for housing diversifies, you might ask: “Is HMO a smart investment choice for me?” In this guide, we’ll dive deep into HMO investments for 2024, providing you with insights on the latest trends, the benefits, and the challenges to watch out for. Whether you’re a seasoned investor or just starting, we’ve got answers to your burning questions. 

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Understanding the trend in the HMO business 

HMOs, or Houses in Multiple Occupancy, are an attractive solution for many seeking the advantages of shared accommodation but also for those investing in the property market. Despite the pandemic changing the way people think about living in cities, the HMO modality has continued to drive interest as a profitable business in 2024 and for good reasons.  

Market trends in HMO investing 

Even after the pandemic persuaded dwellers to leave the cities in favour of more spacious countryside living, many are returning. Trends report by Paragon Banking Group revealed that Central London captured the strongest levels of tenant demand by the last quarter of 2022. The fact remains that cities stand as hubs for education, jobs, cultural activities, and opportunities.  

The rising property prices are another determinant for tenant demand, making HMOs a popular alternative because they make city living affordable. Students, for instance, often choose HMOs to stay close to their universities. Similarly, young professionals are more motivated to be near their workplaces without breaking the bank. Further, the HMO market taps into a broader range of tenant profiles, from young and older singles to executive leases. 

Profitability indicators for HMO investment 

Investing in HMOs can be profitable. One of the reasons is that the total rental income for an HMO stands to be higher than for single-occupancy homes. Moreover, renting to multiple tenants means accessing multiple income sources, thus guarding your cash flow.  

For instance, when consulting Rightmove, a standard single-family rent for a 5-bed property in Cambridge was approximately £3,000 per month. But for a similar house and location, each room would be rented in the range of £900 as an HMO property. Having five tenants would make an HMO gross monthly income £4,500 instead of £3,000, which is an extra £1,500 per month, or potentially £18,000 per year.  

Investors will be wise to consider other relevant indicators, including net rental yield (capitalisation rate), which factors the operating costs for a rental property. 

Master the ins and outs of Houses of Multiple Occupancy with this HMO Architect’s comprehensive guide  

Regulatory changes impacting HMO investors 

If you’re considering investing in HMOs, knowing the rules is essential. In 2023, new regulations to make sure HMOs are safe and pleasant for tenants came into force. For instance, the new HMO fire regulation mandates landlords to install prominent fire safety instructions, among other measures.  

While local groups and government bodies set these standards, it’s prudent to work on the premise that accommodation quality is more than just compliance. As an investor or landlord, you must be up to date with these changes, ensure the property meets the criteria, and obtain the necessary permits. If well-prepared, these rules may suggest quality to attract more tenants. 

 

The many benefits of HMO investment 

Investing in property can be a challenging endeavour. But among the sea of options, HMOs stand out with some unique advantages. These benefits continue to make it an enticing venture for those considering diversifying their portfolios or seeking more stable income opportunities. Let’s uncover what makes HMOs shine. 

The income stability from HMO investments 

Imagine having a property where, instead of one tenant, you have four or five, each contributing to your monthly income. If one tenant decides to move out, you won’t be stranded without pay. Instead, you’ll continue to receive rent from the remaining tenants. This system minimises the rental void risk and can lead to a more predictable and steadier income stream than traditional single-let properties. 

High demand for multiple occupancy housing 

As cities grow and evolve, so do the housing needs of their inhabitants. Many urban dwellers now prioritise location over size, opting for affordable housing options in strategic areas, like near universities or business hubs. This trend underscores the increasing demand for shared living spaces like HMOs. They’re traditionally popular among students but also among young professionals, transient workers, and others who value location and community over private space. 

Diversification potential of HMO properties 

Putting all the eggs in one basket is rarely a good idea for investors; this is a well-known approach particularly relevant for property entrepreneurs. HMOs offer the possibility to diversify property portfolios. Instead of investing solely in commercial properties or traditional residential homes, HMOs provide a different market segment to tap into; this means your investments in other areas, like HMOs, might still thrive even if another market faces challenges. 

Are HMO properties a good investment? 

By now, you might be sensing that the answer leans towards ‘yes’. HMOs have proven to be resilient even in uncertain times. They offer a unique value proposition to tenants while providing investors with several benefits, such as steady income and high demand. Moreover, as housing needs evolve, properties that can cater to these changing preferences – like HMOs – will likely remain relevant and a sought-after alternative.  

Challenges and considerations in HMO investing 

While HMOs have numerous benefits, like any worthwhile investment, they come with their own set of challenges. By understanding these obstacles, investors can better prepare and navigate the landscape of HMO investments. Here’s a closer look at what you might encounter. 

Legal complexities in buying HMO property 

Jumping into the HMO market isn’t as straightforward as purchasing a single-family home. There are legal hoops to jump through. For starters, many local authorities require HMOs to be licensed, especially if they house a certain number of unrelated tenants. Each region may have different licensing requirements, standards, and fees. Moreover, specific regulations determine room sizes, safety measures, and tenant rights.  

Before taking the plunge, you must do your homework, familiarise yourself with local laws, and maybe even seek legal advice to ensure you’re on the right path. 

Managing HMO investment properties 

The journey doesn’t end there once you’ve acquired an HMO property. Managing an HMO can be more demanding than a regular rental. With multiple tenants, you’ll deal with more personalities, potentially more and different maintenance requests, and higher turnover rates. Consider the logistics involved, such as collecting rent from various tenants, addressing individual concerns, and ensuring communal spaces remain clean and conflict-free. 

While these tasks can be demanding, they also offer an opportunity. With good management practices -or by hiring a reputable property management firm- you can ensure smooth operations and maintain a happy living environment, leading to tenant retention and consistent rental income. 

Assessing the rental yield and HMO values 

Numbers drive decisions in investments. For HMOs, it’s essential to understand the potential rental yield and property values. The rental yield gives an idea of the return on investment: how much income you can expect relative to the property’s price. With HMOs, calculating this might require considering factors like occupancy rates, room rates versus whole-property rates, and property management or maintenance expenses. On the other hand, property values will determine your potential capital growth.  

While HMOs can be lucrative, keeping a pulse on market trends, neighbourhood developments, and broader economic factors that might impact property values and rental demands is crucial.

 

Navigating the HMO landscape with the HMO Architect Team 

HMOs aren’t just about renting out rooms. It’s a complex dance of market understanding, property optimisation, and tenant satisfaction. The HMO Architect Team is a strategic partner, helping you identify suitable properties, advising on the best layouts, and guiding you towards success in this dynamic market. 

How architectural services address HMO investment challenges? 

Optimising space while ensuring tenant satisfaction and regulatory compliance is a challenge. The HMO Architect Team’s architectural expertise transforms these challenges into opportunities. Our designs prioritise both functionality and aesthetics, crafting spaces that attract tenants while making the best use of every square foot. We do more than meet standards; we aim to elevate them. 

The HMO Architect Team: A trusted source in HMO investing  

With a strong record in the HMO market, our team has empowered hundreds of investors to make informed decisions and see tangible results. Partnering with The HMO Architect Team will give you the advantage point, tapping into a deep well of market knowledge and foresight to make your best investment decisions based on feasibility rather than guesses. Trust in our expertise to solidify and expand your HMO investment ventures. Need more certainty about your next move? You can book a free discovery call with the HMO Architect Team. 

 

Wrapping up: Is HMO investment worth it? 

As we end our exploration of the world of HMO investments, it’s necessary to zoom out and see the bigger picture. What are the potential gains and the challenges, and where does the future lie for HMO investments? 

Pros and cons of HMO investment 

Like all investment avenues, HMOs have their sunny sides and their shadows. On the plus side, HMOs can offer a stable income, especially when demand for shared living spaces is high. They allow property owners to maximise rental income from a single property by renting out individual rooms. On the flip side, managing multiple tenants can be demanding, and legal requirements can sometimes feel like a maze.

The future of HMO investing: A final take 

The real estate landscape is constantly evolving, and HMOs are no exception. The need for affordable housing and shared living spaces, especially in urban areas, is on the rise. While challenges exist, the demand for HMOs isn’t waning anytime soon. As cities grow and the younger generation looks for cost-effective living solutions, HMOs will continue to be a significant player in the property investment scene. The key? Stay informed, adjust, and choose the right partners, like The HMO Architect Team, to navigate this promising yet intricate market. 

Picture of Giovanni Patania

Giovanni Patania

(Architect Director, Co-Founder)

Giovanni Patania is the Lead Architect and Co-Founder at HMO Architect and Windsor Patania Architects.

Originally from Siena, Italy, Giovanni worked as a Project Lead Architect at Foster+ Partners, designing Apple stores across the world,

An HMO Investor himself, Giovanni understands property thoroughly, both from an investor's perspective and technically, as an Architect.

With over 15 years of HMO development experience, working on over 150+ HMOs and a 95% Planning and Building Regulation success rate, Giovanni has the expertise and credentials to help you on your HMO journey."

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