HMOs Are No Longer Top Dogs In Buy To Let Investments, But It’s Ok!
For many years, numerous property investors and gurus have gone on the record saying that registered HMO property are the most lucrative buy to let business plan in the UK.
As a result, a flood of investors aspiring to build their own property empire went out and converted family homes into HMO property to rent. This is typical behaviour since people tend to follow the trend.
Now, a new study from the Mortgages for Businesses exposed that by the 2th quarter of last year, a newer investment strategy has overtaken HMOs as the most lucrative buy to let investment in the market.
This new data shows that “multi-unit freehold blocks” or investing in a block of flats just inched HMO property to be the most profitable buy to let investment approach for the last quarter of 2014.
HMOs reported an average of 9 per cent yields, while multi-unit freehold blocks earned 9.3 per cent during the the said period.
Traditional buy to let, on the other hand, continued to become the least profitable of the three most popular buy-to-let strategies with a slow but sure 5 per cent yield.
A chart released by the Mortgages for Businesses shows that investing in a block of flats moved around 7.5 per cent gross rental yields from 2011 up to the first quarter of 2014, but it started to accelerate during the second quarter until the end of the year.
So how does this strategy work, and how did it overtake HMOs, in terms of profit? Simple! Landlords of these multi-unit freehold blocks lease each flat to a different tenant, and he charges not only the monthly rate, for the flat itself, but also ground rent.
Will this high-yield strategy be the new trend? Probably not on a wide scale. If you want in on this straategy, you better have quite a hefty capital to start out.
An apartment block with 8 buildings, located just outside of London, costs around £500,000, while those near central would, normally, fetch for £4 million.
David Whittaker, a representative for Mortgages for Businesses, explained that the increased rental yields for multi-unit flats may connected to the high transactions for larger multi-units in the last quarter of 2014, and, even though there is a high margin for profit it’s a strategy that’s suitable for investors with large capital in their hands.
I agree with Mr. Whittaker’s opinion on these multi-unit flats.
Just because a newer strategy was able to produce higher yields doesn’t mean that HMOs are slowly losing it’s profitability or that all investors should jump ship and trade their HMOs for multi-unit flats.
In fact, HMOs are getting more in demand as wages stagnate. Regular folks just can’t afford to rent a big property anymore on their own, and this almost force preference for room renting rather than whole property will ensure that there is a steady yield-boosting demand for HMOs over 2015.