Houses in Multiple Occupation (HMOs) are now an increasingly popular and financially rewarding option for many property developers. On average this type of property can yield a return of ten per cent, higher than single occupancy lets. With this type of redevelopment, you will need specialist development finance. Below we explore HMOs and how you can finance your HMO redevelopment project.
What exactly is a HMO?
As a property developer, you gain increased yields due to the fact that you can let multiple rooms in one building. Each room generates its own income. To qualify as a HMO there need to be at least three unrelated individuals living in the property, who also share a kitchen or bathroom facilities. To qualify as a large HMO, there need to be at least five tenants. It’s important that every single room that you let has its own fire door and lock.
Development finance for HMOs
When you plan to redevelop a family home for use as a HMO, you will need specialist development finance. There are lenders who view this type of property as an added risk, as they do not attract the family resale market. Many investors choose to go down the commercial mortgage route for this type of property, as it is seen as the safer investment. However, there are also specialist mortgage options that are available to landlords and property developers.
Other things to consider
When you choose to finance a property development for the HMO market, there are other things that you need to consider. You need to plan how many rooms you wish to let in the property, and the total income per month. You also need to factor in the location, the type of tenants and the amount of money available to you. It’s also important to know from the start if you plan to use managing agents, as you will need to factor in this cost.
Panoptic helps you to find the right lender for your HMO redevelopment project.