Buy to Let Investment: Why to Go for Houses in Multiple Occupation
A multiple occupation house is a dwelling shared by several, unrelated people, couples or even occasionally families with communal facilities. The kitchen, living room and bathroom may be shared, or it may simply be a stairway and hall that is shared. These buildings differ from purpose built apartment blocks as they were originally built as a large family home. Subsequent development has turned them into a multiple occupancy house. This is one type of property which can be purchased when investing in the buy to let market. Current research suggests that this might actually be the best type of property to purchase.
Convenient costs for management and maintenance
Having several properties to rent within one building reduces the costs of purchase and the overall maintenance and management costs. This is because many of these costs are shared across several rental incomes; this ensures the costs per head are lower than the average individual buy to let property.
A survey of the buy to let market shows that this remains the top performing asset class. However, the same survey also noted that investors in HMO’s would have received a better rate of return over the last few years than the standard buy to let options. The purchase price of a multi occupation house is higher than a standard buy to let but only by around thirty three percent. The returns on the investment for a multi occupancy house are just over three times the return on the average buy to let – an impressive and worthwhile difference.
The key to this level of returns is the vast market of young professionals and key workers who need somewhere convenient and relatively cheap to live. They also require less space which ensures the rent received per metre squared is much higher in a HMO than a BTL property. This demand is supported by a dedication from landlords to provide high quality, individual spaces at an affordable price. In return many young professionals are putting off purchasing their own property as their existing living arrangements suit their needs.
Regions – HMOs are a viable type of investment regardless of location
Returns on HMO’s have been shown to be better than standard BTL across the country. BTL’s have a historic trend of providing excellent returns within the capital but diminishing returns across the rest of the country. By contrast the HMO’s are giving a good rate of return in all areas of the country; this means there are more potential properties open to investors, regardless of their location or budget.
Many investors look to purchase property for the financial gain that should be acquired upon selling a property in the future. However the general increase in house prices will apply to all areas of the market and any increase is magnified by the receipt of rental income along the way. As HMO’s provide a greater rate of rental income, the long term picture remains stronger, and better financially, if purchasing HMO’s.
In addition, the capital gains are not guaranteed, the market can crash as it has done recently and this can place your finances under considerable stress. It is during these times that the rental market tends to increase in size and a HMO can do exceptionally well. Basing your investment on the idea of a steady return from income will also ensure that any price increase in the property is a bonus; should you decide to sell it.
It should be noted that a HMO is more complicated to purchase and rent than a standard BTL. This should not put you off but it may mean that you need to talk to a specialist lender to secure the necessary finance. You may need to be aware of additional local government regulations and you will almost certainly need a larger deposit. The income generated will make it all worthwhile.
Regardless of your choice, before spending any money you should consult with a professional in the field. A skilled realtor will provide the best advice; he knows the market and he’ll be able to make recommendations. HMOs are an excellent type of investment, although they’re not for everyone.
By Davis Miller and PropertyTurkey.com!