As a real estate investor, what I am looking for is to have a great return on my investment, and to reduce my risk. This means investing in real estate with a great yield, and with ways to make sure I will receive a rent every month.
There is one type of real estate that is a perfect fit for those requirements: houses in multiple occupation, or HMOs. In this article, we are going to see what are the features of this kind of real estate, and why they are great for investors. Of course, we’ll see how using real estate crowdfunding can really help you invest in such properties. Let’s dive in!
What are HMOs?
HMOs, for Houses in Multiple Occupation, are houses in which several individuals or families are living in, while sharing some parts of the house like the kitchen or the living room. These kind of properties are mainly located in the United Kingdom, where they have to follow certain rules. The landlord also needs to get a special license for this kind of properties, but we’ll come back to that later.
In other countries, those kind of properties exist as well with other names & rules. For example, it could perfectly be renting a single large flat or house to multiple people like students. Note that many elements of this article could perfectly apply to multi-family homes, where several families are living in the same building but in individual units.
Enjoy Higher Yields
The first benefit of an HMO for a landlord is the high yield that such a property can provide. Indeed, as you have multiple occupants in a single unit, you can charge more to each of them compared to what you would charge to a single tenant or family.
For example, for a large flat suitable for two people, let’s say you usually charge 1000 Euros for the whole property. As you could put two tenants in the same flat, you can easily charge 55o Euros to each of them, meaning that you just raised the overall yield by 10%.
In terms of yield, this means that it’s not unusual to have yields superior to 8%, and sometimes even in the double digits range for such properties. That’s just amazing when I compare that to the yield of the first buy-to-let flat that I acquired, that had a yield around 5%.
Reduce Your Risk
Investing in HMOs or similar properties also allows you to reduce your risk. Indeed, when being the landlord of a property with a single tenant, if this tenant doesn’t pay, that’s it for your rent. And you still have the whole mortgage to pay in case you have one.
With an HMO, even if one of the tenant doesn’t pay for one month, that’s not the end of the world. I even invested in properties where only 3 out of 4 tenants where present, and those properties still had a very good yield. Having multiple tenants in a single unit is an amazing way to reduce your risk.
How Real Estate Crowdfunding Can Help
Finally, let’s see how real estate crowdfunding can help you here. Indeed, those properties can be quite costly, as it is usually large flats or houses that can host several people. Those properties can be out of reach for a newcomer in the world of real estate investing, without a lot of capital to invest.
Using real estate crowdfunding, you can invest in only smaller shares of these kind of properties, meaning that you can still enjoy all the benefits (high yields, reduced risk) but by investing a much smaller amount of cash. With a given sum of money, you can also invest in several HMOs as well, to reduce your amount of risk even more with diversification.
There are also other benefits of using real estate crowdfunding to invest in such properties. One is the management: you will usually have tenants moving in & out quite frequently, and you definitely don’t want to be doing this yourself. Using real estate crowdfunding, this will all be taken care of for you from the start. The other benefit is the legal aspect: you won’t need to get the HMO licence yourself for example, the real estate crowdfunding platform will do that for you.
Because of all those advantage, I personally love to invest in HMOs. They provide high yield, reduced risk, and it’s so easy to invest in such properties with real estate crowdfunding.
Have you already invested in HMOs or are you considering it? Don’t hesitate to share below!