This is the question that myself and other panellists at last week’s Property Investor and Homebuyer Show at London ExCel debated in front of a 100-strong audience.
As landlords struggle with the shrinking returns of their single occupancy buy-to-lets and look to Houses in Multiple Occupation (HMOS) as a strategy for achieving higher yields and more income, we asked whether they were equipped with all of the knowledge and expertise to ensure they acted ethically as well as made a profit.
The overwhelming conclusion we came to was yes - of course HMOs can be both profitable for the landlords as well asoperated ethically for the benefit of the tenant. But limited knowledge of such a hands-on strategy can lead to unregulated HMOs that aren’t providing what the tenant needs.
There were two angles we needed to look at here – the landlords’ desire to make money and the tenants’ need for high standard yet affordable accommodation.
Matt Hutchinson from SpareRoom was one of the other panellists and he shared that on a first quarter comparison between 2013 and 2015, there has been a 33% rise in the number of people looking for rooms in shared houses and only a 0.3% growth in the number of people providing those rooms.
There is therefore a huge opportunity for landlords to start operating in a market where there is a high demand. However, this also shows that attitudes are changing. Yes, we know it is more difficult for young people to get their foot on the property ladder, but it’s not necessarily the priority of everyone.
At PPP, and with the help of SpareRoom, we have just conducted our own extensive tenant research. This shows that a lot of people in their mid-20s and early 30s actually don’t want to be tied down to a house, a mortgage or a location – they want flexibility. They want to travel and work in different places before they decide where they want to settle down.
So we discussed that, on the one hand, HMOs can provide a profitable investment strategy for landlords, but on the other, they provide young people with somewhere to live – a social option that caters to their needs. The research also shows that sharers are able to save a lot more than if they were to rent alone, meaning they could be putting some of that aside to go towards a deposit for a house.
The tenant demand that Matt talked about is for high quality, affordable and well-managed properties, not low quality, over-priced and unsafe HMOs – which is the low end of the market where the rogue landlords operate.
It is therefore key for landlords to educate themselves in the area of HMO investing in order for them to be able to make a decent return from their portfolio, but also provide a quality product and high level of serviceto tenants. Another panellist, Ash Zuberi, said; “An HMO portfolio can be a big beast and you have to learn to control it” and that is absolutely true.
Landlords need to know where to buy, what to buy, how to refurbish a property effectively and how to fund the investment. They need to ask themselves whether they know how to get planning permission or how to run a portfolio in a tax-efficient manner? They need to understand the plethora of local and national legislation and licensing that applies to investing in HMOs. And this is just a short list!
One thing is certain – having a property portfolio that is of a great standard and compliant can deliver the best results and the best returns. HMOs are no get rich quick strategy and require a lot of hard work and commitment. Landlords would do well to remember that before considering whether this is a strategy they want to follow.
