Which would you rent out: a HMO or a family let?

I was having a chat with a landlord who had recently purchased a four bedroom house in Rochester. It needed a bit of work, so was questioning whether or not it would be ideal for a student let, or just to stick to what he knew and rent it to a family. So I did a little research for him, and wanted to share it with you, in case anyone else is considering the same.

Ask the big question – what is the rental market like in your local area? Is there a demand for student lets? Medway has seen an enormous rise in HMOs in recent years, especially Gillingham and Rochester, and as such, the student market is starting earlier and earlier each year as younglings look to secure the best properties with their friends. There are 68 student properties available in Gillingham currently, but only 20 in Rochester.

So let’s assume demand > supply in Rochester for student properties. At the moment, on the market there’s one 4 bedroom house in Rochester Avenue for £338.00pppm. Monthly that’s £1352.00. If you bought that for £162,500 (as one currently SSTC on Rightmove) – your yield is 9.98%! If you rented it to a family after purchasing for that price, you’re looking at a monthly rent of approx. £850.00 and a yield of 6.26%.

Also, compare your property’s location – if you’re looking to purchase something in a quiet residential area, it is unlikely that choosing to go with a HMO would be the best idea. On the face of it, student and professional HMOs will yield you a much higher rent. Yet there could be issues – some will ask for a 10 month tenancy, so you have 2 void months per year, but some are open to 12 months and pay ½ rent for the 2 unoccupied months. There’s also a lot of extra work for a HMO landlord – not just finding & referencing new tenants yearly, but organising 4 tenants and 4 guarantors can be a time eater in itself!

Also you must consider your legal duties as a HMO landlord – though the rules vary between councils, you will need to modify the house to some specific standards – including fire & electrical safety obligations. Also, should your home be over 3 floors and have 5 or more occupants, you’ll need a license from the local council – and even more standards to adhere to.

That all said, a family let also has its pros and cons (longer tenure, though risk of redundancy, pet damage, less rent/yield). Always consider what you’ve purchased the property for – if you can happily apply safety standards to your property, and you’re looking to maximise the investment as much as possible, perhaps go with the HMO. If you’re looking for a stable, long term let with a lower profit margin, perhaps stick with the families.

Our landlord in the end chose the latter option. What would you choose? Remember, if you need any advice, don’t hesitate to pick up the phone and call us on 01474 833050/01322 860500, email us here, or visit our website here (where we currently have a stonking HMO for sale).

Do properties on Rochester Road, Gravesend make good investments?

We've been chatting to a lot of investors over the last week about houses in the local area. Most of them had originally called us about our house for sale on Rochester Road – one that very swiftly went under offer. So we had a little think about how popular the road is for owner occupiers, landlords and tenants.
Rochester road, if you look a little closer, is actually a fairly great investment – whether you’ll be living there yourself, or renting it out to a lovely tenant. It’s close to the town (and the train station), on the same road as a Primary School, a Secondary school and the College and nearby to the A2 (along Old Road East, up Valley Drive and there you are). It also has ample on street parking if you’re not lucky enough to have a garage (providing you don’t want to find a space in school rush hours).

Our house on the road comes under the ‘owner occupier’ bracket, but there is seems to be a healthy mix of owned and rented. For instance, in the last six months, four properties have been rented, at an average of £722.50. Four houses have sold in the same time frame, for an average of £202,498.00. House prices in Rochester Road have increased 23.4% in the last 10 years – a steady return on any investment.

The majority of houses along Rochester Road are terraced three/four bedrooms, rented as they are to families, or split into rooms and let individually (of course, you’re looking at much higher yields for HMOs, but much more stringent legislation – something we know a fair bit about, if you have any questions). Judging on the examples used above, it takes an average of 31 days to rent our your property on Rochester Road.

So, you’d purchase (let’s say) a three bedroom house on Rochester Road for the average price of £202,498.00, and rent for the average price of £722.50, you’re looking at a yield of just 3.5%. But if you look at a specific property currently available for sale (£199,995.00), and take into account that specifically houses have rented on Rochester Road for an average of £870.00, you looking at a much healthier yield of 4.4%. So it’s always best to get your agents opinion on the rental value while you’re having a look round, rather than relying on the law of averages.

All in all, where you live/purchase to rent comes down to personal choice. Everyone has different priorities and reasons for their purchases.  We keep on top of the whole of the market and if you want to pick our brains on what would make the best buy to let investment/new home for you, email us here, visit our brand new website, call us (you must know the number by now, but if now - 01474 833050) or pop in and see us for a cuppa. 

P.S. Our next blog post will be on 20th June.