With rising rents in big cities, it is becoming increasingly difficult for many people to live centrally. One solution to this problem is HMOs or “houses in multiple occupation”. In other words, houses in which more than one household lives.

This blog will therefore deal with precisely this topic and also why HMOs sometimes divide opinion. We at Pillar-X have already successfully pursued an HMO strategy and can tell you about our successes.

Why is an HMO strategy so lucrative?

A good investment strategy has to combine some very important aspects. On the one hand, a correspondingly high return must be possible, the investment must not be too risky and it must be able to function in the long term. The HMO investment strategy combines exactly these three aspects perfectly.

HMOs are typically let to several people who all have a single lease. This means that a complete vacancy of the property is very unlikely. Likewise, HMOs are usually very cheap compared to conventional accommodation, which is why new tenants are found quickly. This is especially the case in cities with many young residents who do not have a large budget but want to live centrally, for example for studying.

Furthermore, affordable housing in large cities is one of the strongest trends. Especially in the USA, it can be observed that rents in cities are rising extremely and only very few people can actually afford these prices. Through HMOs, especially young people have the opportunity to live in cities without exceeding their budget. Thus, HMOs should be a future-proof investment.

In addition, the yields of HMOs are significantly higher than those of normal rental contracts. By splitting a property for several tenants, many synergy effects can be used, which in the end lead to a higher total rent for the property. Although in most cases money is needed to turn a property into an HMO, this investment will pay off in most cases in the long run.

What does Article 4 mean for HMO investors?

Unfortunately, HMOs have historically received a bad reputation in some parts of the UK. For example, cities such as Leeds, Glasgow and Bradford ban HMOs in many parts of the cities.  In doing so, these cities rely on Article 4 to justify their decision, citing some of the negative effects that can result from HMOs.

In many of these cities there was an oversupply of HMOs, resulting in many areas being virtually all HMOs. The low rents of HMOs in these parts were said to have led to an increase in unwanted people moving into these areas, which increased the crime rate. In addition, the high turnover of tenants in HMOs is said to have led to poor neighbourly relations. However, most of these problems are due to poor management of an HMO. As long as tenants are adequately screened and properties are in good condition, the negative effects on the city should be minimal.

Fortunately, there are still some cities, such as Liverpool, that continue to allow HMOs in some parts of the city. For this reason, there are opportunities to polish up the bad image of HMOs and build a sensational investment at the same time.