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).