Reasons why you SHOULDN’T get involved in the shared housing marketAnalysis, Background
There are lots of good reasons why property investors should consider getting involved in the shared housing market. This article looks at some of them. But, for balance, let’s take a look at why investing in shared accommodation – or what is usually known as a house in multiple occupancy or HMO – might actually be a very bad idea:
For starters, you’ll need a HMO licence in most places. These are usually expensive, and there are a thousand-and-one conditions you have to meet in order to get one.
You might need planning permission to turn a house into a HMO in some places. Those places where you do usually indicate places where the local authority doesn’t want any more HMOs thank you very much.
It can be a minefield of red tape. Rules and regulations applying to HMOs are extensive. Some local authorities enforce them with vigour, and penalties for breaching the rules, even accidentally, can be high.
If you’re thinking of buying a property to turn into a HMO, many existing properties simply don’t meet the current standards – for example on room sizes and so on – and can’t easily be converted.
There is too much HMO accommodation in some places, so it might be hard to find tenants – especially good quality tenants. It’s probably true to say that investors have saturated the market in a few locations in recent years.
Student HMOs can be a good opportunity. But, in some parts of some popular student cities, the students have moved on elsewhere in recent years.
HMOs can take a lot of hands-on management. You (or someone working on your behalf) will need to visit your property on a regular basis, and be on call to deal with any problems at short notice.
Some HMO tenants bring anti-social behaviour problems with them, occasionally serious depending on the area and type of market you get involved with.
Running costs, wear and tear and maintenance costs tend to be higher than with standard residential properties.
If you want to sell your HMO then it might be difficult to find a buyer. For example, unless you go to the trouble of converting back to a standard residential property, you’ll only be able to sell on to another investor who wants to operate a HMO.
So why do HMO investors bother investing in shared accommodation?
The main reason is yields:
HMO properties tend to be located in areas of cheaper property prices. Yet the rent that can be charged, per square metre, is usually considerably higher than for property on a standard residential let. That means a high return on your investment is often possible. Well selected HMO investments often make returns of 10% plus, while returns of 20% and occasionally more are not unknown for a shared property.
At the end of the day you’ll need to decide whether the extra return compensates you for the extra hassles and extra work. If it doesn’t, shared property investment probably isn’t for you.