Investing in Houses in Multiple Occupation (HMOs) has proven to be the most profitable specialist buy-to-let strategy over the years, with the asset class outperforming single-tenancy rental properties by 40%.

By effectively and tastefully maximising the number of lettable rooms in a single property and renting them individually, landlords can achieve average gross yields of 15%. The additional rental income generated can ensure better profit margins and provide a sufficient buffer against fluctuating costs, including tax and interest rate rises, therefore reducing risk.

However, higher returns can come with increased time investment, as well as the cost involved in managing multiple tenants in multiple properties. There is also additional planning, licensing and building regulations to consider, so it is essential investors do their homework.

When building an HMO portfolio, there are lots of key areas to cover including:

  • Location and property – Deciding where to invest can be just as important as the type of property you buy.
  • Rules and regulations - Complying with all planning, licensing and building control legislation is crucial or you could face hefty fines.
  • Conversion and refurbishment – Making sure you focus on the practical elements first and aesthetic second, remembering that your target tenant may not share your own tastes.
  • Tenancy and property management - Creating harmonious households is about finding the right tenants for your properties and managing them effectively.
  • Our ‘Combining Franchising with Property - 7 Steps to success in 2018’ guide details our top tips and best practices for building a profitable and compliant HMO portfolio.

Investing in property is a business

Most importantly, you need to understand that if you fail to plan, you plan to fail, and this saying is just as prevalent in the HMO sector as it is in any other business – because investors must remember that this is a business.

You need to decide why you are investing in property at the beginning in order to adopt the right strategy. Is it for an immediate income, long-term capital growth or inheritance planning for the future for example?

Your available capital, potential sources of future funding, individual circumstances and long-term goals will be factors to consider when deciding whether or not to invest in HMOs.

Managing HMOs can also be very time-intensive and if you don’t have the free time to be actively involved in the day-to-day running of your portfolio, then the cost of outsourcing this work has to be considered when analysing potential returns.

Once you have clarified what you want to achieve by investing in property, you need to set up the most appropriate business structure.

Help from ethical and professional tax advisors is a crucial first step in building your property portfolio and could limit your tax bill and maximise your profits.

Alternatively, follow a tried-and-tested specialist HMO property investment model established by Platinum Property Partners, where help and guidance are always at hand and for way beyond these 7 steps. Call us today to see how we can help you in your property investment journey.