HMO Investing in Edinburgh 1st Feb 2017The Scottish rental market remains buoyant overall, with good rents being achieved for the right properties in the right location. Given that Edinburgh is the UK’s 2nd largest financial sector, and the 4th largest in Europe, and has Edinburgh University which ranks 19th in the world, 5th in the UK, and highest in Scotland, there are plenty of young professionals and students keen to let, as they do not want to commit to buying.
The House in Multiple Occupation (HMO) market is unsurprisingly performing particularly well, and therefore is worth consideration for investors. Competition amongst tenants for HMO properties is fierce, which means high rents and minimal voids. However in order to generate the best return on your investment it is vital to consider what you want to buy and where. Location is key - especially for students who want to be near their college or university. Certain locations are more profitable that others, with student specific areas having the highest yields. Also consider the property that you are buying – how will it work for your tenants, how many bedrooms do you want, how many bathrooms are there (more than 1 is preferable in an HMO let), is there potential to develop / add value to the property in the longer term, is it in an area that is likely to experience strong capital growth?
Over the last 5 years, HMO investors have received a higher return on their investment than the average buy to let investor. The attraction of HMO is largely due to the high potential yields, plus the potential for capital growth. The recent Citylets report (Q4, 2016) has revealed that average rents for a 3 bed property stand at £1,268 and £1,703 for a 4 bed. The average time to let is 36 and 42 days respectively, with 13% of 3 beds and 5% of 4 beds being let within a week.
However while the rewards might be rich, growing and managing an HMO portfolio is incredibly complex due to the legal requirements and increased governance of this sector. Consider all costs involved, including HMO license fees, renewals and upgrade requirements set by the HMO team for work to the property, repairs and replacement of furnishings. The more bedrooms, the higher the rent. Do however consider wear and tear, and forthcoming changes to this allowance.
Do you have time to deal with all of the demands of an HMO property, including keeping abreast of all current and forthcoming regulations and legislative requirements? If not then it would be wise to have a reputable letting agent to fully manage your property. Controls on HMO properties are stringent, and penalties for failing to comply are hefty.
If you choose to go down the HMO route, it is certainly worth getting a reputable letting agent involved. The Key Place is very experienced in managing HMO properties and can deal with the complete HMO process for our landlords . . . we take the stress, worry and hard work away! Contact us now for further information.
See accompanying newsletter article for further information on HMO’s.