There are many factors that could influence the future of the HMO investment market, in both good and bad ways. I don’t have a crystal ball, but I will draw on my 10+ years of experience in the industry to give you the best idea possible of what the future might hold.

Discussing and preparing for the future can help you think several steps ahead, be able to sidestep any problems, laser in on any opportunities that present themselves and even ‘future proof’ your HMO properties. 

In this blog post, we’ll discuss the future of the HMO investment market and tips for how you can prepare. Read my insights below or listen to the full episode on The HMO Podcast.

Supply and Demand

I believe that the supply of HMOs is going to increase over the next few years. The HMO investment market is becoming more popular for investors. This will likely lead to more properties coming onto the market in this sector.

Additionally, I think demand will outstrip the rate at which new properties come onto the market. Younger people are becoming more accustomed to the idea of house shares and are more transient than previous generations, which makes HMOs a great choice for them.

We’re also still nowhere near our national targets for building new homes. The overall shortage of housing will likely continue for potentially the next decade. And HMOs are actually one of the areas where we can create new rental units and even help with the housing shortage. 

Tip: Demand outstripping supply will not apply to every part of the UK, so you need to know the area you’re investing in like the back of your hand.

Property Values

Ultimately, I believe property values will continue increasing. I don’t see a point in time where properties, and particularly HMOs, are going to be significantly cheaper than they are now.

It’ll become more challenging to find properties, particularly HMOs, at a good value. And with more people moving into the HMO space, these investment properties are commanding a premium value. But keep in mind that if you already own properties, they could go up in relative value as well.

In order to buy HMOs, we’ll need to find more cash for deposits, and there will likely be fewer opportunities to secure higher-yielding assets. However, I think yields in the industry will still outperform other areas and will always be stronger than buy-to-lets. 

Tip: Don’t sit around waiting for property values to drop. Moving forward, finding and appraising deals will require even more persistence and diligence.

Liquidity Factor

Currently, there have been a huge number of government incentives pumping a lot of cash into the economy. And it will likely take years before all of this cash washes through the system.

Additionally, many people have been saving during the COVID-19 lockdowns. This has led to extra cash circulating in the economy, and many people are looking for a strong return on their cash. With all this liquidity in the economy, it will be easy to buy properties, but finding good deals will become challenging.

On top of that, debt is cheap and easy to access. This is also presenting more competition in the market. And the HMO investment market is becoming one of the most attractive areas within the residential sector.

Tip: Be really switched on with what’s going on in the industry, and be aware that there is a lot of competition in the market. 

Alternative Investments

The HMO market is still one of the strongest alternative investments for yields, particularly in the residential sector. While yields are reducing, the HMO investment market will likely continue to outperform other alternative investment strategies. 

As the investment is asset-backed and there’s strong demand from tenants, this gives us more security. Because of this and the strong returns, the HMO industry will likely become more competitive as more investors enter the sector.

Tip: We should still be excited about the future of the HMO investment market. It’s a phenomenal alternative investment strategy, and the sector still has a huge amount to give.

Trends and Behaviours

There’s been a massive shift in the type of accommodation young people want and the way they want to live. However, the bulk of the HMO market still hasn’t caught up with this.

Among young people, we’re seeing a continuing trend towards community, spending more time at home and remote working. We’re also seeing a trend towards en suites and high-quality fixtures and finishes. 

Because of the increasing supply and expectations, tenants can afford to be pickier, so we need to prioritise what our prospective tenants want. This will help you get ahead of the curve.

Tip: Rethink your properties and the type of accommodation you’re buying and developing. Adapt your products, and be prepared to make changes.

Competition

Some may think there’s a huge amount of competition in the HMO space. And there are some areas with a lot of competition, but overall, the majority of the HMO investment market is made up of student landlords who’ve been in the game for a long time. 

A lot of the people I see entering the industry have created totally different products to these. They are almost incomparable to the majority of the existing stock in the HMO market and are pushing up standards, which is great for the industry. 

Tip: Don’t be fearful of the competition. Be aware of what the competition is doing, and focus on creating a better product. 

Legislation

More legislative changes are likely on the horizon in the HMO investment market. At some point, we could see more article 4 directions rolled out nationally. This would make it more difficult to convert properties into HMOs as it’ll take longer, cost more and we’ll need to jump through more hoops.

HMO licensing and minimum industry standards will also likely change. Currently, there is mandatory licensing for any HMO property with at least five bedrooms. However, a number of selective and additional licensing policies are in place across the country. I think HMO licensing for three bedrooms and up will eventually be put in place for the entire nation.

Over the next decade, we should also expect that the minimum size of bedrooms and communal spaces will increase. This may lead to a good proportion of properties no longer working for the number of currently allowed tenants. 

Tip: You’ve got to be a professional investor and understand all of the relevant legislation. Take your role as a landlord seriously. If you don’t, you’ll get left behind.

So these are the seven most important areas to think about when looking at the future of the HMO investment market! I hope I haven’t shattered too many beliefs, and at the same time, I hope I’ve got you excited about the future and encouraged you to think realistically about the market. 

Even though there are some factors that might make it more difficult to invest in HMOs down the road, there’s still an unprecedented opportunity to create great quality housing and build a sustainable and very profitable portfolio. If you prepare for these changes that are afoot and remain agile, you’ll do really well in the HMO industry.

For more useful insights and advice on how to start, scale and systemise your HMO portfolio, join The HMO Roadmap today!

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 and Smart Property, a specialist HMO property investment and management company. He 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!