Co-living – HMOS, discover why investors are joining the trend

Written by Sapphire Savvy Women Group.

 

 

HMOs are amongst the most popular property investment strategy out there, but how can you elevate this investment style and have a hand in creating harmonious tenant experience resulting in long term tenants?

Hint: the answer just might lie right under your nose in the form of a more advance co-living scenario.

 

What is an HMO?

house in multiple occupation (HMO) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’.

This style of investing in properties often fetch an investor, a good set of profits as they can reap the benefits of renting out multiple rooms in their space. This style of investing and renting is becoming increasingly popular amongst landlords and tenants.

Whilst previously, there may have been a view that HMOs don’t facilitate comfortable family living, we are seeing a brand-new emergence and perspective on this property investment style.

There has been an increased focus on defining a HMO space as a means of co-living, and when you look at it that way, co-living can be seen as creating micro-communities under one roof, this can be extended to many different groups of people. You can rent out your HMO room by room or as a whole house (which typically means a group who knows each other will move into the induvidal rooms).

 

Are HMOs an accessible choice for me?

We want to provide you with some facts and figures of how HMOs are influencing the market so stay put and read on.

 

Let’s have a look at the following cities: London, Liverpool, Leeds, Brighton, Tonbridge

According to data taken from Home.co.uk – in 2021, we can see the average price of 3-bedroom housing. Keep in mind a lot of houses are expandable meaning you can create further bedrooms from: Reception rooms (particularly in Victorian builds due to the generous sizing), Loft and Garage conversions, extensions.

Area # Of bedrooms # Of properties in area Avg. price Median price Avg. time on market
London 3 bedrooms 8,812 £1,363,501 £775,000 237 days
Liverpool 3 bedrooms 789 £212,259 £190,000 115 days
Leeds 3 bedrooms 317 £270,386 £250,000 87 days
Brighton 3 bedrooms 163 £582,856 £575,000 169 days
Tonbridge 3 bedrooms 37 £439,851 £425,000 108 days

 

Whilst there are a considerable number of available properties within London, the price point may put a new investor off. In this circumstance, the remaining locations might then be an appealing choice for you, but it is all down to business and personal preference.

Having a rough overview of the average price of a 3- bedroom home and keeping yourself updated with this type of information will help you choose an area and location that suits you best.

You may also want to consider what type of tenants you’ll want in the property if you’re thinking students… it’s of course advisable to look into university towns.

 

Rental yield:

The latest Research taken from BVA BDRC, shows that the average rental yield for an HMO property currently stands at 7.5%.

 

Rental yield is the annual rental income expressed as a percentage of the property value.

Knowing the rental yield of a particular property will help you understand if it is a good property investment.

 

Different ways to rent out your HMO space

There is various way to rent out your HMO, you can’t opt for room- to room renting which by title means you rent each room out to individual tenants who most likely do not know each other. Alternatively, you can rent the HMO as a whole, this means you are renting to a group who are looking to share a home together and the group is considered 1 whole tenant responsible for the tenancy agreement.

 

 

Let’s discuss some pros and cons for each scenario.

Pros and cons of renting HMOs by room:

Pros:

-You are able to make more income as you can collect rent for each room

-You can let the room on a license (ensuring an easier eviction process if this is necessary)

-You’ll have access to communal spaces

-It’s a lot easier to replace 1 tenant who leaves, compared to a whole group

 

Cons:

-You are directly responsible for paying and managing the bills (though you can attain this through the rent you charge)

-You may have issues if your tenants don’t get along

-Individual tenants are only accountable for their rooms, making it difficult to prove one person caused damage to communal spaces

-There are a lot of areas to manage, which can be overwhelming without a management agent

 

 

Pros and cons of renting as a whole house – HMO:

Pros:

-If one tenant leaves, the remaining group still need to cover the full rent amount

-If a group chooses to live together, they will most likely not have issues getting a long

-The group is recognised at 1 tenant

 

Cons:

-Trying to find a new tenant if one person in the group moves can be tricky, they may feel isolated

-You’ll need an EPC

-You can be excluded from all common areas

 

I’m interested but do I need an HMO-licence?

The gov.uk recommends “If you want to rent out your property as a house in multiple occupation in England or Wales, you must contact your council to check if you need a licence.” Adding

“You must have a licence if you’re renting out a large HMO in England or Wales.” Check out the gov.uk website for more specific notes on licensing your HMO investment property.

 

How to make your HMO, more co-living centered.

Sarah from Alt-Street Property was one of the first to recognise a need for young professional to live in affordable housing and ideally with like-minded driven individuals. With a particular focus on championing co-living and creating dynamic communities within these homes and wider areas.

There are ways to take your HMO a step further and tap into more of a co-living vibe, co-living can take your investment from just being a space to live, to being a hive of activity for potential groups. This can be appealing to many who are looking to build relationships and have a desire to interact with their house mates, perhaps they’ve moved to a new city and don’t know many people. Whatever the reason, co-living can prove to be beneficial.

 

 

A previous guest on our Podcast (The Savvy Property Investor Show), Sarah Watt explained why she’s a fan of the co-living concept:

“Some people would argue that there is no difference [between an HMO + co-living] but to me the distinguishing factor is the service deliverable.

“Co-living to me is that service element, so without that element it really is just an HMO. To me, it’s the events, the community they’re the main two things that can differentiate it from any other shared house out there.” Watts adds,

“Do your tenants all get together? Do they form a community bond? Are they events they can regularly attend to? Some co-living places also have events and discounts such as cinema tickets”

Co- living is all about combining the familiar elements of multi-bedroom homes that have accessible communal spaces with events and services such as cinema nights, perhaps there’s an allotment style garden that your tenants can get their hands stuck into, or maybe you’ll entice them with special one perks that the whole household can enjoy.

The Finance Talk – blog, posts weekly on Monday’s, where you can get the latest exclusives on what’s occurring in the housing market. As professional property investors and Educators, we make it our job to know the property business -so check on in and we have you covered.

Tune into to our podcast The Property Investors Show – where you will gain POWERFUL insight from worldwide property, finance and investment experts. Learn from their tips as they get candid with host Sapphire Gray on their losses and success stories.



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