Photo by Dragon Property

In recent years, demand has been strong for co-living rental properties. With the cost-of-living remaining high, more and more young people are continuing to be priced out of buying, especially with higher house prices and mortgage rates.

Because of this, we have seen a rise in more young people having to put off homebuying plans. Young professionals are increasingly looking for rental properties that suit their budget and lifestyle, and professional HMOs can be a great option for many of them.

As there is strong demand in this market, especially in certain areas of the UK, this can be a great investment for investors. In this guide, we’ll discuss the ins and outs of investing in professional HMOs, including the benefits, challenges and how the sector works. I’ll also include things you need to consider and my top advice!

Benefits of Investing in Professional HMOs

The professional HMO sector comes with a range of benefits for both investors and tenants. It can be an extremely powerful business model if you get it right, allowing you to earn strong rental yields. With demand for co-living on the rise, the HMO market plays a key role in helping fulfil this demand, especially among professional renters.

Young professionals are more transient than previous generations and are also renting for longer with the average age of co-living tenants on the rise. One of the main reasons tenants choose co-living is because it tends to be cheaper to rent a house share. Because of its affordability, demand will likely continue to outstrip supply, especially in certain locations.

Shared accommodation also provides flexibility that many young people prioritise nowadays. As there are numerous tenants in a HMO, this can help tenants feel less isolated and part of a community, particularly when investors prioritise high-quality communal spaces and effective tenant matching.

Challenges of the Professional HMO Sector

While there are a range of advantages of investing in the professional HMO sector, there are some challenges too. For starters, these properties are substantially more difficult to manage, particularly when compared to student HMOs.

Professionals typically have high expectations, making it essential to offer a strong property management service. It can also be difficult to maintain higher occupancy as this tenant demographic is more transient, so you will naturally end up with some void periods. You need to make sure you factor that into any deal appraisal!

Additionally, tenants in a professional HMO are all on their own tenancy agreements opposed to student HMOs, where tenants come and go as a group. So, professional HMOs require more admin and paperwork. You’ll also spend more time managing relationships in these types of properties.

If you’re planning on investing in professional HMOs, take some time to understand all of the challenges that come with this type of investment and be aware of everything that’s involved with owning a HMO in this market!

The Ins and Outs of HMO Property Management

There’s a lot to do when it comes to HMO property management. And as professional HMOs take more time and energy with tenants coming and going more frequently, it’s a lot to juggle! So, make sure you’re prepared for what it takes to own and run a professional HMO. Here are some of the key activities that need to be done to effectively manage them.

• Advertise Rooms: Marketing rooms and managing the adverts and enquiries is a key part of managing professional HMOs. Enquiries should be responded to within 30 minutes. You can’t just leave things for a few days, or they will enquire elsewhere and take up other rooms.
• Screen tenants: You need to screen prospective tenants and undertake reference checks and a vetting process before anyone becomes tenants. This takes up time to do effectively, and it’s helpful to have a tenant matching strategy for your HMOs as well.
• Process Deposits & Tenancies: This involves the transfer of money, tons of paperwork, getting signatures, chasing guarantors, getting prescribed information, putting other documents in place, and ensuring the right certificates are issued for the tenancy.
• Undertake Inventories: Issuing new tenants with up-to-date inventories is time-consuming, and you’ll need to get them agreed by the tenants. But it means when tenants move out, you have a benchmark to check if there has been any damage to the room or furniture. 
• Collect Rent: You can’t just assume that your tenants will pay rent on time each month because that’s just not going to be the case. This part of property management will involve setting up standing orders, reconciling the rent and chasing payments, and you need to find out how to handle this swiftly and accurately.
• Manage Tenants: Tenants will need us for a lot of different things with all sorts of issues and questions popping up on a regular basis. How will you go about managing tenants? Sometimes you’ll need to be on hand pretty quickly to answer certain questions or resolve specific issues.
• Take Care of Maintenance & Repairs: You need to manage maintenance and repairs in a quick and efficient manner. These jobs will need to be chased, checked on and progressed. The bigger your portfolio gets and the older your houses get, the more maintenance you’ll have to manage. 
• Handle Evictions: No matter how good your tenant screening is – some tenants will not be suitable to stay in your properties, and you will then need to look at evicting them. So, you’ll need to go through the eviction process, which can be super stressful. 

Considerations to Make

Before you start investing in professional HMOs or scaling your portfolio in this industry, you need to consider a few things to ensure you effectively invest in professional HMOs!

How Will Your Property Be Managed?

As you need to provide a high-quality property and a strong management service in order to be successful in this sector, it’s important to consider if you’re in a position to self-manage or if you need to hire a managing agent.

Keep in mind that managing professional HMOs is not easy to do. Make sure you’re aware of everything that’s involved in owning this kind of property to ensure you’re effectively prepared. The ongoing activities of property management take up a lot of time and energy and it can be really overwhelming. 

So, for some investors outsourcing the management could make a lot of sense. But keep in mind that using a managing agent comes at a cost. Most will separate their fees into tenant find fees, monthly management fees and additions for maintenance. If you’re aiming to replace your income or scale your business, that’s a lot of cash, so weigh up the pros and cons.

We typically recommend that you start as you mean to go on… If you plan to eventually self-manage your own portfolio, then I would start that process now. Learn the ins and outs of property management, get support where you need it and develop your confidence. This will help make it easier to grow into that role!

What’s Going On in the Local Market?

You need to ensure you understand the current market and what your target demographic is looking for. You can get a lot of great data in SpareRoom. Assess the data available across your investment location. What’s happening with supply and demand? What’s the competition doing?

Become a local expert. This can help you create the best product and service and secure top rents. Don’t make assumptions or go off what other people tell you. Make sure you put time in figuring this out for yourself and consider what you need to offer in your property and at what price.

 

4 Tips for Investing in Professional HMOs

There are some things you need to make sure you get right when investing in professional HMOs, so here are some of my top tips from my own experience investing in these kinds of properties to help you build the right foundations for your portfolio of professional HMOs!

1. Consider Using Property Management Software

Implementing and maintaining compliance and fault reporting across all of your HMOs can be a logistical challenge, and this is expected to become even more challenging with the Renters Rights Bill.

Property management software can help landlords stay on top of compliance by automatically creating recurring tasks to ensure compliance for certificates. You can then schedule recurring checks, track maintenance issues and ensure that each room is up to the required standard. Some software has automated tenant communication as well.

COHO is our partner HMO property management software and transforms property management for investors by making tenant enquiries, maintenance requests and financial tracking seamless. If you’re a member of The HMO Roadmap, you can take advantage of 20% off your annual subscription of COHO, and the first 12 months of e-signatures are free!

2. Be Prepared for Worst Case Scenarios

There are a lot of challenges you can face when running professional HMOs, especially when it comes to managing these properties. Getting certain things wrong could be catastrophic, such as getting the location wrong for your target demographic. 

It’s important to keep in mind that things will go wrong. It isn’t the case of if. It’s a question of when. No matter what – things will break down, people will let you down and sometimes things will be out of your control!

You need to expect that it won’t be plain sailing… You’ll need to overcome obstacles, you’ll have void periods, there’ll be lots of maintenance you need to attend to and you’ll have to deal with difficult tenants and formal complaints at some point.

While there are challenges that come with investing in professional HMOs, you can mitigate most of these by getting the support from the right people, following the right guidance and knowing what you’re doing. But just make sure you’re aware of the realities of investing in this kind of property.

3. Keep Up with What Your Tenants Want

If you can create high-quality HMOs that provide features professionals are looking for in their homes, this will help you create a successful and sustainable portfolio. And to effectively do this, make sure you keep up with the changing needs of your target demographic.

Tenant preferences often evolve over time, so you need to be prepared to adapt and make changes to your HMOs accordingly. On top of that, modern professional tenants are increasingly expecting more from their rental properties!

So, always be aware of the current market and understand how to produce high-quality, well-designed homes that will attract your target tenants. Keeping on top of this will help you better ‘future proof’ your HMOs as well.

4. Put Efficient Systems & Processes in Place

With professional HMOs being harder to run and operate, we recommend taking a look at your systems and processes and finding ways you can drive efficiency when it comes to managing your property. 

This will also help you put structure and solid foundations in place and ensure you stay on top of all of your legal obligations and that nothing falls through the cracks! Many of the problems you’ll encounter when running a portfolio of professional HMOs can often be resolved by having effective systems and processes in place.

To systemise your business, you’ll need to pull all of the pieces together on how to deliver certain activities or tasks. These should be implemented into every area of your HMO business, including tenant and property management activities and dealing with prospective tenant enquiries, viewings and screenings. 

 

Need Any Support or Guidance?

If you’re planning to self-manage your professional HMOs, your property management strategy will be a key area you need to get right, and it’s something you’ll need to continuously improve over time. 

Having a strong property and tenant management strategy will help you provide a better service to all of your tenants. This could even help make some of them want to stay for longer in your HMOs, boosting your profitability! 

There are a number of things you need to think about and do when investing in professional HMOs. To gain access to training and resources to help you start, scale and systemise your portfolio, become a member of The HMO Roadmap today! 

You can also gain access to some brilliant case studies of professional HMOs across the UK. This can help you see how fellow investors transformed properties into brilliant co-living spaces, made deals work and overcame challenges.

And if you’d like to be part of our community of more than 10,000 HMO investors, join us in our Facebook group The HMO Community! Start a conversation thread, ask your burning questions or discuss anything about HMO investment with our inspiring and supportive community.

 

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind, writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!