They are also fast becoming popular in parts of the country where more people are unable to get on the housing ladder and are therefore turning to renting with others to save money for a deposit. With a higher demand for this type of accommodation, investors are keen to enter the market and reap the rewards of more rent and higher yields.

However, whilst this may appear straightforward, there is so much more to building and managing a successful HMO portfolio than it may appear.

HMOs typically have between three and 10 bedrooms with communal areas such as the kitchen, bathroom(s) and living room.

A large HMO is at least three storeys high with at least five tenants who live there and form more than one household. They will share communal facilities.

Typically rent for a HMO in Bicester is £550 per double room, and can be as much as £1,650 for a three-bedroom HMO. This compares to £1,100 for a three-bedroom house. Gross yields in the area can be as much as 10% for HMOs compared to 4% for a two-bedroom flat.

Ten top tips:

• Before you begin to build your portfolio, you need to be clear on your strategy, what you are looking to achieve from the rental property, what your finances are, how much you can commit, what you need to do to comply with regulations and legislation, and what your exit plan is
• To operate a property as an HMO you might require a licence. Licences are issued by the local council in which the property is situated and are valid for five years. A separate licence is required for each property you run. Licensing for large HMOs is compulsory
• Those new to investing in property should look to build their portfolio slowly
• The process of purchasing and managing a HMO property is complex with legal requirements and a range of regulations you must adhere to. Seek legal advice and ensure you understand all of your requirements – building control, health and safety regulations which apply to all HMOs
• You should check with the local council as to whether they have any specific regulations and licensing requirements you need to adhere to. Along with this, you may also need to obtain planning permission to change the use classification of the property. Therefore, it is very important that you seek legal advice before buying a property for multiple occupancy.
• It is very important to understand your budget and stick to it
• Location of the property is very important – students will want to be close to the university campus and professional sharers will want to be near to transport links and employment hubs
• The process for building and managing a HMO portfolio can be time consuming and stressful, so it can be advantageous to appoint an experienced letting agent to assist with the process. They can advise upon changes to regulation, collect rent, manage the day to day maintenance of the property and tenant queries.
• Provide good quality accommodation and ensure you keep up with the property’s maintenance

There are a range of mortgage products available on HMO properties from a variety of lenders, including those on the high street. Most products are available on either a purchase or re-mortgage basis to both individual and limited company borrowers. Interest rates on HMO mortgages are typically higher than a standard buy to let mortgage but you can currently get a rate starting from 1.49% from BM Solutions.*

Many lenders prefer borrowers to have experience as a landlord before they will consider an applicant for an HMO mortgage. There are only a few lenders that accept borrowers without any landlord experience. Therefore, it is advantageous to speak to a mortgage consultant before you set out on the process of purchasing a HMO, to find out what your mortgage options are.

*September 2017

Guest post By Michelle Niziol, CEO, IMS Property Group, an independent sales and letting agent, mortgage broker and property investment group, based in Bicester.

The post How to Build and Manage a Successful Portfolio of HMOs first appeared on Property Insider.

For starters, you’ll need a HMO licence in most places. These are usually expensive, and there are a thousand-and-one conditions you have to meet in order to get one.

You might need planning permission to turn a house into a HMO in some places. Those places where you do usually indicate places where the local authority doesn’t want any more HMOs thank you very much.

It can be a minefield of red tape. Rules and regulations applying to HMOs are extensive. Some local authorities enforce them with vigour, and penalties for breaching the rules, even accidentally, can be high.

If you’re thinking of buying a property to turn into a HMO, many existing properties simply don’t meet the current standards – for example on room sizes and so on – and can’t easily be converted.

There is too much HMO accommodation in some places, so it might be hard to find tenants – especially good quality tenants. It’s probably true to say that investors have saturated the market in a few locations in recent years.

Student HMOs can be a good opportunity. But, in some parts of some popular student cities, the students have moved on elsewhere in recent years.

HMOs can take a lot of hands-on management. You (or someone working on your behalf) will need to visit your property on a regular basis, and be on call to deal with any problems at short notice.

Some HMO tenants bring anti-social behaviour problems with them, occasionally serious depending on the area and type of market you get involved with.

Running costs, wear and tear and maintenance costs tend to be higher than with standard residential properties.

If you want to sell your HMO then it might be difficult to find a buyer. For example, unless you go to the trouble of converting back to a standard residential property, you’ll only be able to sell on to another investor who wants to operate a HMO.

So why do HMO investors bother investing in shared accommodation?

The main reason is yields:

HMO properties tend to be located in areas of cheaper property prices. Yet the rent that can be charged, per square metre, is usually considerably higher than for property on a standard residential let. That means a high return on your investment is often possible. Well selected HMO investments often make returns of 10% plus, while returns of 20% and occasionally more are not unknown for a shared property.

At the end of the day you’ll need to decide whether the extra return compensates you for the extra hassles and extra work. If it doesn’t, shared property investment probably isn’t for you.

The post Reasons why you SHOULDN’T get involved in the shared housing market first appeared on Property Insider.