Are Buy To Lets Worth It? (BTL vs HMO vs Apartments)

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There are a whole host of options available to rental property investors but are buy to lets worth it?

They can certainly create high yields and are an excellent long term, tax-efficient investment, but owners should weigh up the pros and cons before jumping into such a big decision.

There are legal & capital gains tax considerations, project complexities, potential rental income and ongoing landlord tasks to assess before deciding how your property would be best let.

You should also consider the state of the housing market and economy at the point of investing.

Increased house prices and high-interest rates could result in inflated mortgage costs that reduce your yield from a buy to let property.

Here, we discuss three popular plans which might suit your ambitions as a prospective buy to let landlord:

HMO


Houses of Multiple Occupancy (HMOs), which are let to multiple occupants from different families, provide shared facilities such as a kitchen and bathrooms (ensuites are allowed).

Start-up costs can be high as you’ll be required to furnish the property and each of the rooms, plus you’ll need to meet heightened health and safety requirements.

However, rental yields can reach far beyond those from a single-family unit, given the number of occupants who will be paying rent per room.

The strategy is gaining ground with investors, and in Liverpool for example, HMO rents have risen by 6% in some areas over the past year.

Students and young professionals, plus tourists on shorter-term agreements, could all make good HMO renters making this an excellent investment property to consider.

Expected rental yield from HMO? An average of 6.3%, according to Letting Agent Today.

Single Family Let


By renting to one family alone, you will have fewer tenants for yourself or your agent to manage, resulting in far less work.

There will likely be far fewer start-up costs as the property will not need repurposing, and in most cases, the property will be easier to sell given the appetite for ‘traditional’ homes rather than multiple occupancies for the general market. 

However, by receiving your rent and bills from one source, you assume a far greater risk than with an HMO.

The yields are not as impressive – yields differ dramatically from region to region, but you’d currently expect an average of 5.48% in Liverpool, and 2.8% in cities like Oxford.

Expected rental yield from a single-family home? Anything over 3.53% can be considered ‘over-performing, says Seven Capital.

Apartments


Creating standalone flats from a single-use property will take time, effort and cost in the start-up stages.

You’ll need extensive planning permission, plus building repurposing costs, and you’d be betting on a market less stable than the single-family homes.

There are positives to this set-up, though – you’ll receive rent from each tenant, spreading the risk across multiple occupants.

You’ll also be able to charge more than in an HMO, but this needs to be weighed up against start-up costs and lack of rent being paid while the building is being repurposed.

When you come to sell, you could reap large rewards – you’ll essentially have two or three separate properties to showcase to buyers.

The apartment market is especially buoyant in cities like Liverpool, where Alesco Property Investments revealed it expected yields of up to 8% from its latest Bishop Square development.

Expected rental yield from a flat? As Seven Capital’s report shows, anything above 3.53% can be considered as out-performing the market – but remember, you’ll be enjoying multiple property yields once you’ve created more than one dwelling.

Giovanni Patania

Giovanni Patania

(Architect Director, Co-Founder)

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

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

"I Co-Founded Windsor&Patania - Architecture and Developments, together with Ryan Windsor, my good friend and multi-award winning Property Investor.

Our mission is to is help our clients structure all kinds of developments taking care of any aspect of it, from the design to the investment strategy and financing."

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