Photo by Ikon Property

Many beginner property investors want to figure out what kind of investment is right for them, and sometimes this can be challenging to weigh up…

Here we’ll compare investing in HMO properties to buy-to-lets, including the pros, cons and opportunities of each, tips for getting started in property investment and how to figure out what investment type is best for you!

Standard Buy-to-Lets

For starters, standard buy-to-lets are rented to a single household, like a family, couple or individual. With this type of rental, one tenancy agreement is signed and a single rental payment is made to the landlord every month.

Buy-to-lets can suit a range of tenant types in a wide array of areas in the UK. This type of property investment also has less starting and operating costs and is less-time consuming, particularly when it comes to property and tenant management.

When it comes to buy-to-lets, there is usually less wear and tear on the property and lower risk involved. But at the same time, the rental income and yields are typically substantially lower than the income that can be achieved by HMO properties.

HMOs

On the other hand, houses in multiple occupation (HMOs) are inhabited by three or more unrelated tenants who share communal facilities but have their own bedrooms. Demand has been high for HMO rooms, especially among professional, student and social renters.

There are a range of investment locations across the UK that are performing particularly well for HMO landlords, but location is probably even more important when it comes to these types of investment.

In recent years, more and more investors have been leaving the buy-to-let industry and opting for alternative investments, such as HMOs, to generate better cash flow and maximise rental yields.

There are other advantages as well, including if a tenant falls behind in rent or vacates, HMO landlords can receive rent from the other tenants, which helps minimise the financial impact of rent arrears and void periods.

But when it comes to HMOs, there are higher starting and operating costs to factor in and additional rules HMO landlords need to be aware of. As there are more tenants in a HMO than a standard buy-to-let, property management takes more effort and time, which can be challenging to manage.

3 Tips for Getting Started in Property Investment

No matter what type of property investment you end up getting involved in, there’s a lot you need to think about… So, here are some of my top tips to help you to get started on the right foot!

1. Do your research on your legal obligations. When it comes to property investment, there is a range of legislation you need to make sure you understand and adhere to. Because of this, it’s crucial to get an understanding of your obligations before getting started, particularly as getting this wrong can have big consequences!
2. Figure out where you’ll get capital from. Investing in property requires a TON of capital. So, you need to find out how you’ll fund your first property investment and the ones after that if you’re planning to build a portfolio! Look at the options available to you. You may have money saved up for this, but it may also mean borrowing in part from the bank and/or private finance. 
3. Understand the importance of having a long-term view. It’s important to keep in mind that property investment doesn’t earn you a lot of money overnight. This will take time and effort. Because of that, having a long-term view is often the key to success. So, make sure you’re committed to investing in property before getting started.

Figuring Out What Investment Type Is Right for You

Investing in HMOs isn’t right for everyone… It can be difficult to know if it is right for you and looking from the outside, it can seem easy. But that’s definitely not the case. Read below for some advice to help you figure out what property investment type is right for you!

1. Think about what your goals are. What do you want to achieve with property investment and why? How hard do you need and want your money to work for you? Do you want to prioritise cashflow or creating big chunks of equity? This is crucial to start thinking about as these will all impact what you should invest in!
2. Understand the different types of property investment. Make sure you start getting an understanding of the different types of investment you’re interested in before getting started investing. Start learning some of the ins and outs so you can better decide what fits best with your financial and personal circumstances!
3. Assess the risk and what you’re comfortable with. Do you have an appetite for more risk or are you more risk averse? If you do have an appetite for more risk, particularly more risk than standard buy-to-lets, then HMOs could be for you. It’s not just because we’re usually talking about larger projects and more money, but as there are more tenants with HMOs, the risk of things going wrong is higher! So, consider how much risk you’re comfortable with.

Concluding Thoughts

Higher costs, interest rates and government policy will likely continue to push more investors to look at less traditional forms of property investment, including HMOs. But beginner investors will need to undertake thorough due diligence to make sure they make the right choice for themselves and get started in the right way!

If you’ve decided to start investing in HMOs and want to learn all of the technical bits, sign up for The HMO Roadmap! And for additional support from fellow investors, join us over in The HMO Community Facebook Group.

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind, writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!