Should you be Investing in HMO’s post-Covid-19?

Forth Action Invest on August 16, 2021

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Over the past few years, HMO’s have significantly increased in popularity amongst investors looking for high yields rather than the more traditional buy to let strategy.

We have often been involved with HMO conversions which have seen investors with 15% Yields from converting 2/3 bed terraces across Greater Manchester. This strategy has come under a few changes such as Mandatory licensing for 5 beds and above and also various new regulations being introduced such as Article 4 restrictions and minimum room sizes and amenity standards.

What is the impact on the HMO Rental Market?

During COVID-19 the rental market has definitely taken an unexpected hit with new enquiries across the UK considerably down to that of this time in 2019. It isn’t uncommon now to see rooms renting at 20% less than average going rate in that area, just to fill the vacancies. The good news is rooms are still renting but at a discounted rate than what we are used to seeing.

A large portion of the HMO market is made up of what we call, Blue-collar workers as well as White Collar, and Retail. The Retail & Hospitality industry has been one of the most affected since the country went into full lockdown which naturally has resulted in a large percentage of tenants not being able to make ends meet. Not to mention some of these workers may have been on 0’hour contracts, potentially leaving them without an income for the foreseeable future. This along with the uncertainty of contracting the coronavirus will most certainly be a factor in recent changes we are seeing.

What can we expect post-COVID-19?

Once the government restrictions are lifted and people are slowly introduced back into work we believe there will be a number of opportunities presented to Investors who are looking to diversify into the HMO strategy and those with an existing portfolio.

The demand for HMO’s before the lockdown was very prevalent across Greater Manchester due to new developments happening everywhere and the abundance of employment opportunities. Naturally, it is expected that this pent up demand will start to show again once things go back to normal, with people re-locating due to new jobs prospects or maybe reducing their living expenses, by downsizing from 1-2 Bed apartments, into good size HMO rooms with plenty of local amenities and Transport Links.

Preparing your HMO to Thrive

As mentioned there will likely be a new emphasis on hygiene and personal safety once the crisis settles down. Tenants will be more conscious of this so it is crucial to prioritise the cleanliness of any existing HMO’s in order to attract the right tenants or maintain the ones you have. As mentioned there will be a large portion of people who are from the “White collar sector” looking for a more affordable alternative to renting an apartment in or around Greater Manchester.

These tenants will be used to having their own space so larger rooms above the council guidelines including En-suite facilities and possibly kitchenettes is likely to make them stand out from the competition.

Typically HMO’s are properties that are rented to 4 or more unrelated individuals however most councils will consider 3 individuals who are not related and living together as an HMO. 3 Bed HMO’s often known as “Minimo’s” could also present you with a great opportunity in the coming months. As mentioned above tenants prioritise space & renting a property which is shared with only 2 other tenants is likely to be far more appealing than sharing with 4 or 5 more.

Small HMO’s “MiniMos”

Typically HMO’s are properties that are rented to 4 or more unrelated individuals however most councils will consider 3 individuals who are not related and living together as an HMO. 3 Bed HMO’s often known as “Minimo’s” could also present you with a great opportunity in the coming months. As mentioned above tenants prioritise space & renting a property which is shared with only 2 other tenants is likely to be far more appealing than sharing with 4 or 5 more.

3 Bed HMO conversion are also likely to cost less when considering the refurbishment giving you an option to increase the spec of the house to a market-leading level or use less capital resulting in a higher net yield.

How should you go forward?

Our advice going forward is to be patient, Keep an eye on any new emerging trends within the sector and make contact with reputable lettings agents as well as property sources within the areas you are looking to Invest. Location is key, so if you have not already shortlisted a potential new investment area head over to our post The best Areas in Manchester to Invest.

Alternatively, if you are looking for ways to improve your HMO investment read our post 10 ways to guarantee as successful HMO.