Shared living is becoming a more popular option among tenants looking to save money while forming new friendships. For investors, a rise in HMO opportunities is being led by certain UK regions.
House shares and flat shares have often been associated with student living, with hoards of undergraduates flocking to new towns and cities each year to complete their studies and make new friends. Because of this, there is some historic stigma around the property type that makes people associate it with poor quality, and problematic tenants and landlords.
However, over the past decade, there has been a shifting trend towards shared living, linked to factors including cost savings as well as an improving reputation as more professional landlords have entered the sector.
Houses in multiple occupation (HMOs) is the official term for this property type, which covers any house or flat that offers rented accommodation to three or more people who are not from one household (ie. unrelated to one an other). Each tenant generally has their own separate tenancy agreement, but they use shared facilities such as the bathroom and the kitchen and living areas.
Similarly, a ‘large HMO’ is one that is home to five unrelated, separate ‘households’ who all share facilities – and it is important to note that, for investors, these homes come under slightly more stringent regulations to ensure their quality, such as obligatory licensing and minimum room sizes.
Top locations revealed
Tenants are drawn to HMOs as they tend to be cheaper than renting a whole property. They also offer more flexibility, as each tenant has their own contract, meaning they can hand their notice into the landlord at any point allowed in their rental agreement without having to do so with the other tenants.
For tenants moving to a new location, a house share can offer the opportunity to meet new people and form friendships.
New research from COHO has revealed the locations where the rental market has the highest proportion of living in shared housing, demonstrating key areas where investors can target tenants who prefer this property type.
At the top of the list is Yorkshire and the Humber, where house shares make up more than a fifth (21.3%) of the total rental market. This is followed by the East Midlands where 19.7% of tenants live in HMOs, with Wales in third place with 14% of its total market made up of shared housing.
In the South West, 13.6% of tenants live in house shares, followed by the West Midlands (13.4%), North West (12.7%), East of England (12.3%) and North East (11%). These regions all come in above the national average of 10.8% – with around 14,926 tenants out of a total of 125,667 living in HMOs across the UK.
However, while London’s rental market is the most expensive, it is also home to the highest proportion of flats, which don’t lend themselves to the HMO model – and COHO’s research reports that only 3.4% of rental homes in the capital are house shares.
Why invest in an HMO?
There are multiple benefits that come from investing in an HMO, particularly as they continue to grow in popularity among today’s renters.
Often, tenants move to a particular location because of work, making shared accommodation in town or city centres, or within easy access to good transport links, especially popular.
On average, HMOs can offer much stronger rental yields than traditional buy-to-lets where the whole property is under one tenancy agreement. Void periods in shared accommodation are rare, as each tenant comes and goes separately, ensuring a consistent income stream from the other rooms.
They are often offered with bills included to remove the complexity of multiple tenants organising their bills, and this can also make them more profitable to landlords.
There are certain considerations to take into account before investing in this property type. They can come at a higher initial cost, and might require more maintenance due to the potentially higher tenant turnover. Many investors use a management company to organise tenancies and deal with any issues, which also comes at a cost.
There are also more regulations to be aware of than with a standard buy-to-let. In certain areas, landlords must obtain a licence to operate an HMO, which you can find out about on your local council’s website.
If you’re interested in finding out more about opportunities in key locations across the UK, get in touch with BuyAssociation today to speak with one of our consultants.
