For all the (largely unwelcome) changes in the buy-to-let market of late, the fact still remains that the ancient law of supply and demand ensures that residential buy-to-let remains an attractive asset class and that even the Houses-in-Multiple-Occupation niche, which is particularly highly regulated, can be a solid option for certain property investors. With that in mind, here is a brief guide to the difference between standard residential buy-to-let and the HMO niche.

HMOs involve much more regulation

Even leaving aside the HMO-specific rules, the very nature of HMOs multiplies the work you, as a landlord, need to do to ensure that you are in compliance with the law. In particular, it will increase your exposure to the “right-to-rent” rules, which oblige landlords to confirm the immigration status of their tenants before letting a property. Of course, you can use lettings agents to reduce this risk, but if you do, you need to factor this into your calculations when deciding whether or not to invest in any given property.

HMOs can require a higher degree of “tenant-management” skills

As a landlord of a standard residential buy-to-let, there is a limit to the extent to which local residents can hold you responsible for the behaviour of your tenants and vice versa. In an HMO situation, not only are you more likely to be held to account for your tenants’ behaviour towards the local community (since HMOs require to be licenced), but there is a far higher degree of likelihood that you may be called upon to mitigate in disputes between your own tenants.

You can put yourself in a position to minimise this inconvenience by having a clear set of “house rules” in place and providing cleaners (and dishwashers) to keep communal areas to a decent standard. Again, this would be something you would need to factor into your calculations when deciding whether or not to invest in an HMO.

HMOs can require a higher degree of financial-management skills

HMOs do have a clear edge over standard residential buy-to-let when it comes to the initial purchasing process. When you buy an HMO you only pay one set of purchasing costs for a property which will home several household units.

Admittedly some of these costs may be higher than they would have been if you were buying a smaller residential property, but overall, the initial purchase costs are probably going to be much less than they would have been had you purchased an equivalent number of stand-alone properties. As an added bonus, you can avoid (or at least delay), the point at which you become a “portfolio landlord” and hence subject to greater scrutiny from lenders.

On the flip side of this, however, it has to be remembered that landlords of HMOs could find themselves in a very challenging situation if it transpires that they have miscalculated the property’s potential and that it does not make the income they expected it to. While landlords of standard residential properties can just sell an unoccupied property, landlords of HMOs either have to sell to other investors or make arrangements for the building to be emptied completely of all tenants before it is sold on to a private buyer.

Author Bio: Hopwood House are specialists in property investment, with a large portfolio of buy-to-let properties for sale across the whole of the UK as well as opportunities in the hotel room and student accommodation investment markets.

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Daniel Peacock

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