How Many Bedrooms should I Aim for in My Next HMO Property?
When we are looking at HMO property we are always on the lookout for houses of between four and six bedrooms. Of course, how many bedrooms you should be looking for depends on your strategy. Too few rooms and you might not be able to cover your costs and with too many, the property might be difficult to manage or fill.
Today we're going to be looking at bedrooms and more specifically how many bedrooms should you be aiming for in your next HMO property (house in multiple occupation).
How Many Bedrooms Do We Look For?
When we are looking for HMOs for our clients we usually look for properties that have between four to six bedrooms.
Now, some of the investors we have worked with have had three-bedroom HMOs and these properties have worked great for them. However, we (and the majority of our clients as well), tend to look at HMOs purely on a rental yield basis and this element alone goes a long way to dictating the locations in which we invest.
Rental Yields Vs. Covering Costs
Most of our clients are not looking to be hands-on with their HMO investments. This means that they hire letting agents who manage the properties that they own. Because using letting agents means higher running costs, they need to make sure that they have as much rental income coming from the property as possible.
With a three-bedroom HMO, it can be quite difficult to cover these running costs and still turn a profit. But, if you're a hands-on investor, looking to self-manage your HMO then ultimately it's doable and might give you a better income than you would get out of a straightforward buy to let.
However, if what you want is for a letting agent to manage the property for you then in most cases you are going to want a property that has four or more bedrooms. This is really the only way that you can guarantee an income after your costs have been covered.
One of the main reasons that investors put their money into HMOs is because of the level of cash flow and rental yield that these properties generate.
But, you need to take into account whether or not you are going to be able to find properties in the locations where they are going to rent out. That's to say you have to think about the amount of available housing stock that you are going to have to play with.
That's why we say between four to six bedrooms. Because ultimately that's the sweet spot. You need to find the right location, with the right price range for a property, where the yield or return on your investment is as you want it to be.
As the number of bedrooms increases in that scale - so to five or six bedrooms - then your returns typically will increase quite significantly. It's like a hockey stick effect.
Going Too Large
When considering how many bedrooms you want in a house in multiple occupation, there is such a thing as aiming for too many. Four bedrooms can, however, work quite well. Also, what we tend to find in the locations we cover, is that if we go too large with HMOs they can end up being difficult to manage and difficult to fill.
So again, we try to strike a balance and recommend the four to six-bedroom mark for your HMO investment.
Putting It All Together
Hopefully, this gives you a bit more of an idea as to what to aim for when you're looking for your next HMO property.
The issues might be area specific. You might be looking for a location that can withstand a very large HMO. Of course, this comes down to research. I've included a few links below on this and a few other topics.
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