If you are looking to let property, you have a lot of options to consider, some of these options seem more appealing than others, but you will find a balancing act required to find your ideal let.
If you consider a standard HMO or a student let, you have researched and found attractive options. When managed properly, either of these options can provide you with a great return on your time and financial investment.
However, there are drawbacks to consider, and this guide will help you evaluate the pros and cons of a standard HMO v student let.
The Pros of a standard HMO
Given so many landlords let standard HMO property, it is obvious there are benefits, and some of the most prominent features include:
- You will likely receive a higher yield when letting a standard HMO
- The impact of void periods is reduced when letting a standard HMO
- If rent is late and arrears arise, it shouldn’t hurt your cash flow as much as it would for a landlord with a standard let
- If you select the right area, you should see significant demand from prospective tenants
- You can enjoy a greater income while holding fewer properties
When you look at the Pros of a standard HMO, it is easy to see why so many landlords like this rental option. Most landlords are looking for a greater rental yield, doing so while minimising the problems associated with void periods or late payment are added benefits that are highly advantageous.
The Cons of a standard HMO
Of course, while there are some excellent advantages to letting a standard HMO, landlord and property investors must consider many Cons. It is possible to minimise these problems by working with a good property management service provider. Still, in determining what set-up is suitable for you, you must consider all the positive and negative aspects of letting this property style.
Some of the concerning issues of letting a standard HMO include:
- There is a greater level of legislation required for a standard HMO than with a standard let
- Landlords need to obtain an HMO licence, If applicable
- It is often difficult to obtain finance to fund the purchase of an HMO
- There are more planning restriction obstacles to overcome with an HMO
- Not every property is suitable for an HMO
- When the time comes to sell your HMO, you might find the market is limited
- There are increased start-up costs, and ongoing costs, with an HMO
- Managing an HMO is often harder than managing a student or standard let
- The success of the project depends on the tenants co-habiting well
- You will need a higher deposit when purchasing this style of property
As you can see, there are many Cons to consider with an HMO, but these aren’t insurmountable. Yes, there are more financial restrictions and challenges, especially in the early days of buying and letting an HMO. However, if you are able to deal with these issues, the Pros start to become very attractive.
Also, while there is a lot of administrative work and property management associated with this property style, you can hire professionals to do this for you. Property management service providers, for a fee, will ensure your paperwork is in order, and they will deal with tenants on your behalf.
It is crucial to consider the Cons of letting an HMO, but you will hopefully find it is possible to overcome these challenges and achieve success in the letting sector.
The Pros of a Student Let
Letting to students has long been the backbone of the rental market, helping landlords generate income each year. The rental market is evolving, and there are many more types of people looking for rental property, but there are still many positive reasons to let to students.
Some of the leading reasons to opt for a student let include:
- Students are often satisfied with a basic and minimal service, so if you can provide the key features, you will often do more than enough to please your target market
- There is a strong supply of students, and this number is growing annually, so you can be confident of demand for student accommodation
- Student lets offer attractive rental yields, usually outstripping the expected rental yield for traditional rental property in a town or city
- It is unlikely you will be tied to a long-term contract, with most students only looking to commit to a year ahead at most, which is helpful if you deal with unruly or unhelpful tenants
- There is a low risk of void periods in the student rental sector, with many tenants happy to sign up for a 12-month lease
- You will often find that tenants pay their rent upfront, or at least a significant proportion in advance. This helps the tenants secure their rental property, but also provides landlords with great confidence
The Cons of a Student Let
Of course, while there are many benefits associated with letting to students, there are some concerns to consider.
Some of the key reasons some landlords decide against letting to students include:
- You will be required to provide furnished accommodation, which increases the cost of letting property
- There will likely be a greater level of wear and tear in the property across the lease
- There is significant competition from the Purpose-Build Student Accommodation (PBSA) market
- Most landlords look for guarantors when letting to students, which might limit your audience, even though it provides the landlord with greater confidence
- While the stereotype associated with students isn’t as true as it used to be, there is still a risk associated with anti-social behaviour problems when letting to students
Can students live in HMO?
Yes, both students and non-students can live in HMO property.
Why will some landlords not let to students?
According to a survey carried out by student lettings app SPCE, 70% of UK landlords would not let their property to a student. This stance is because they don’t trust students, or they fear their property will be damaged.
The CEO of SPCE at the time of the survey, Leon Ifayemi, spoke out about this perception and how it “couldn’t be further from the truth”.
Leon said; “With parents acting as guarantors, there’s a very low risk of students not being able to pay rent on time or provide compensation for damages. What’s more, students are also not deserving of lazy stereotypes of them as reckless party animals. They are far more conscientious than that.”**
How to explore finding your best entry into the rental market with The Money Hub
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Mortgage Advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.