The Single Room Surge: Should You Invest in a HMO?

Demand for single rented rooms surged at the end of 2021, but what is driving this demand?

After two long years of the pandemic which has affected tenants and landlords alike and an incredible vaccine roll out in the UK, the country is starting to open up again. While precautions are still being taken, there is a feeling that the worst is behind us. Fingers crossed it stays that way!

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Businesses are reopening their offices and wanting employees back on site, and schools and higher education establishments are also throwing open their doors. While 2020-21 saw a flood of people leaving the city for cheaper rentals elsewhere, we are now seeing people flooding back into the cities from their pandemic boltholes.

A survey of 6,000 room-renters by SpareRoom showed that tenants are looking for single rooms because they are:

  • Moving out of other flatshares (29%) 
  • Moving out of parent’s homes (25%)
  • Moving to the UK from overseas (14%)
  • Moving out of a friends home (10%)

Why are there fewer single rooms available?

As part of this survey, SpareRoom also asked 400 landlords why there just weren’t the rooms available for these tenants:

  • 59% have fewer rooms to fill than they had at the end of 2020 and half of these landlords reported their rooms were now all filled
  • 14% aren’t expanding their portfolios due to high house prices
  • 10% aren’t expanding due to uncertainty in the market
  • 9% have sold one or more of their properties, while 6% are planning on exiting the market entirely

Generally, people are moving all the time, but there’s a spike at the moment as people resettle near their workplaces, which increases the competition for rentals and rooms. Add to that the rising pressure on landlords when it comes to rent arrears, eviction and tax, as well as future plans to push landlords to upgrade their properties, it makes sense that landlords are leaving the market.

But we’re seeing a change in who landlords are, which shows that more landlords are entering the market. While it can be daunting to keep on top of everything, you can use free online tools to track your expenses and your legal certification so you aren’t caught out and fined. You should also find an educational resource that allows you to keep up-to-date with the latest rules and regulation chances.   

So is a HMO a better investment?

A HMO (Houses in Multiple Occupancy) is more work than a traditional rental, as you are renting out the rooms individually. This means that rather than dealing with a single tenant, a couple or a family, all of whom will be covered by one tenancy agreement, you now have to juggle multiple people. 

This can mean:

  • Void periods. These are more likely in a HMO as the tenants tend to be more short-term. However, in a HMO, a void period is less likely to affect your bottom line.
  • Regular tenant finding. With a higher turnover of tenants, you are more likely to be continually looking for tenants, which can be time-consuming as you will need to regularly list your property and run thorough tenant referencing.
  • Deposit issues. As well as regularly finding new tenants, you will find yourself needing to register new deposits and check in on returning existing ones more often. A professional check in and check out can make this easier.
  • Higher yields. On average, despite the additional work, HMOs usually make around 3 times more than a non-HMO rental.
  • Spreading the risk. Rent arrears are always a risk, but if your property’s tenants aren’t part of the same family, if one is unable to pay their rent, it doesn’t mean that you’ll receive £0 for that property. Rent Guarantee Insurance is still recommended to cover yourself (and ours covers HMOs as well!)
  • More responsibility. With more people in the property – you are responsible for the safety and comfort of more than just the average family. So make sure that all of your legal certification is up-to-date (that includes your Gas Safety Certificate, your EICR and your EPC) and that you have Home Emergency Insurance

While the demand for single room lets is high at the moment – this may not always be the case. There are plenty of hoops you need to jump through in order to rent out a HMO – you need to make sure that you have a licence, for instance – and by time you accomplish that the demand could have eased. 

So this is something you should really consider as a long-term investment, before jumping on the bandwagon!

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