The HMO Market 1st Jun 2017
In previous newsletters I have discussed the forthcoming changes in 2018 to Scottish Private Residential Tenancies. This will impact the House in Multiple Occupation (HMO) market as lease agreements will be open-ended, allowing tenants to stay until they wish to leave (giving 1 months notice), unless the landlord uses one (or more) of the 18 grounds for eviction. This legislation will impact the student market as potentially properties could become available at any time of year, when the market to secure replacement tenants is quieter.
However, year round demand for HMO accommodation currently remains high in Scotland’s university hot spots. Edinburgh in particular, is experiencing huge demand for HMO properties.
Research (The Mistoria Group) shows that HMOs continue to outperform more standard buy to let investments for both yields and returns, providing investors a secure investment. Since 2011, the average gross return for HMOs before voids and maintenance on capital has increased by 18-20% compared with an average gross return of 6-8% for traditional buy to lets.
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.
So what are some of the considerations for HMO?
• Location is key. It is essential that you buy in the right location – research your market and choose an area where HMO properties are in demand. Identify areas rich in students, or young professionals willing to share, with good local amenities and decent transport links.
• Buy the right property to suit your budget, taking all costs, expenses and voids into consideration. The more bedrooms, the higher the rent. Do however consider wear and tear, and forthcoming changes to this allowance.
• Ensure before you buy that the property is indeed suitable as an HMO conversion. Making a property HMO compliant is not easy and is not cheap, plus bear in mind the annual renewal fee plus possible further upgrade requirements.
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. Over 50% of landlords surveyed stated that they find the complexities of planning and licensing an on-going challenge. Controls on HMO properties are stringent, and penalties for failing to comply are hefty. For detailed information on HMO licenses, visit the Scottish Government, or your local authority websites.
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.