The Pros and Cons of Student HMOs

A HMO is a house in multiple occupation. In other words, the house is shared by the occupants. The legal definition is a property rented out to three or more people who are not from the same household and share some amenities.

HMOs are especially common in student accommodation, and continue to be profitable investments for landlords in areas around universities.

As with all investment opportunities, there are positive and negative aspects to consider before investing, and a few important things to know that differentiate student HMOs from other investment strategies.

Advantages

Student HMOs offer higher yields than other HMOs, and can be up to 20% higher yield than non-student lets.

Due to its nature, student accommodation is always in high demand. Universities generally don’t provide enough accommodation for all their students, leaving the excess requiring rental properties close by. Additionally, letting terms are predictable as the students will generally stay for a full academic year. This adds a high level of security to the investment, and cuts down on advertising costs or other work to seek new tenants.

If a HMO is occupied by full-time students, there is no Council Tax payable on the property which reduces the day-to-day running expenses.

Disadvantages

Student HMOs have relatively high set-up costs when compared to other buy-to-let schemes.

Due to student lifestyles, there could be management concerns such as noise complaints and excess rubbish. Similarly, wear and tear could be higher than other properties, leading to greater repair and refurbish costs.

As HMOs usually include utility bills in the rent, high energy use, or high energy rates, could eat into your rental yield.

While demand is generally steady for student accommodation, due to the influx of new students each year to university, some areas will have an abundance of housing providing by the university or other private landlords. An excess of supply can drive the yield down as competition lowers rental prices.

Baked into running student HMOs are going to be void periods outside of the academic year, when students will return home and there will be no rental income from the property. This can be mitigated by having higher rents during term times, but is still an issue to be aware of.

There are specific rules and regulations concerning HMOs that need to be understood and adhered to.

Students expect a standard that can be expensive to maintain. They often require superfast broadband, and well-furnished accommodation. In competitive areas, poor quality or deficient HMOs may be hard to let.

Student Housing Trends

The student housing market has grown over the past few decades in response to a steady increase in the number of students attending universities.

While universities continue to invest in providing more on-campus accommodation through their own halls of residence, there are plenty of students who continue to seek off-campus accommodation. Universities still do not have enough accommodation for all their students, and there are also plenty of students who prefer HMOs over halls of residence. These students generate demand for a private market.

Where to Find Properties to let as Student HMOs

Location should be self-explanatory. Without students, you can’t run a successful student HMO. However, there are a few caveats that you should be aware of.

It may be challenging to attempt to establish a new HMO in an area that is already saturated with private rental properties, so do some homework in this regard.

Otherwise, the best places for student HMOs are within easy reach of the university while also being close to the shops, bars and venues the students enjoy. Desirability will often start to fade off if the property is further than approximately 1 mile from the university or other amenities.

HMO Licences

Most HMOs require the landlord to hold a licence to run. Some smaller HMOs do not always need a licence – check the local authority to be sure. For HMOs that accommodate five or more people, a licence is always required.

HMO licences require the property to meet a set of standards, including room sizes, fire and safety standards, kitchen and bathrooms, and others. Different local authorities can have varying sets of standards, so be sure to check for the area you are intending to buy property in.

Article 4

An Article 4 direction allows the local planning authority to withdraw development rights across a defined area. This means that they the local authority can withhold planning permission and prevent a house being converted into an HMO. If the property is within an Article 4 area, you should ensure you will be granted planning permission before purchasing the property.

Outside of these defined Article 4 areas, you do not need planning permission to make these changes for smaller HMOs. Large HMOs, for six people or more, always require planning permission regardless of Article 4.

Final Word

Student accommodation will likely remain in high demand for the foreseeable future. So long as the advantages and disadvantages are understood and planned for, there is no reason why student HMOs cannot be a profitable buy-to-let strategy.

Investing in property, similar to any other form of investment, involves inherent risks. Our website, services, or products do not constitute financial, tax, or legal advice, and should not be relied upon as such. Before making any investment decision based on the content provided on our website, products or services, we strongly advise seeking independent specialist advice from appropriate professional advisors.
Your capital is at risk. The value of your investment can go down as well as up. Historic performance and forecasts are not a reliable indicator of future performance.

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