Single Let vs HMOs: The Best Strategy To Choose
Jessica Chambers
May 19th 2022
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If you have an interest in investing in property then you’ve likely heard of two of the most common methods of doing so, single let property and an HMO. If you don’t have the luxury of being able to add both options to your property portfolio then you may be wondering which strategy is best for you to adopt.
The spoiler alert is that there are both great options, but they both have their pros and cons – so let’s go through both options and help you decide which might be best for you in your situation.
A single let is when you buy a property and rent it out to a single tenant, it’s generally a lower maintenance option to being a landlord and is one of the most simple and hands-off approaches. It could be a family or an individual and as a landlord, you will be responsible for looking after the property and making sure that everything is working and habitable. You may also be responsible for paying any ground rate or service charge, however, the tenant is typically responsible for the household bills like gas, water, utility bills, council tax and more.
HMO stands for House of Multiple Occupation. It’s exactly how it sounds, a house or flat that is shared by multiple different tenants who essentially rent a room and any of the property’s communal spaces. Each of the rooms in an HMO is generally let completely separately, similarly to owning several properties, and it generates multiple income streams.
A lot of seasoned investors swear by single lets, no matter what alternative investment options they try. As with every type of investment, there are pros and cons, so let’s take a look at a few:
Pros:
When it comes to the time you want to liquidate the property, it’s far easier to sell as there is a larger pool of buyers than an HMO for example.
The tenants usually take care of all the utilities and other bills like council tax, so you don’t have to worry about them.
There is just a single tenant so the management of such a property isn’t as difficult as an HMO, and therefore a lot less time-consuming.
You won’t have to furnish the property as the majority of that will be done by the tenants, although a lot of properties are let with white goods in place which the landlord has to ensure is in working order.
Tenants for single let’s tend to stay for significant periods of time, leaving you with fewer void periods that can prove pricey.
Cons:
Having a tenant in the property obviously means that there may be some wear and tear, so you have to calculate these into your monthly costs, some tenants can also be more caring for the property than others.
We mentioned as a pro that tenants don’t tend to move that often in single lets, but when they do, you’ll have a period where you have to cover all the bills. If you have a multi-let, then this is a lot less likely to happen.
Typically properties with a lower value have a higher gross yield, but the income from them isn’t particularly significant. It’s one of the big mistakes investors base decisions purely on yield and not consider economies of scale.
HMOs are a desirable prospect for investors and young professionals or students looking for cheaper accommodation, it’s a win, win.
Pros:
It’s the biggest reason to purchase an HMO, the amount of profit you can make from it. The average yields of HMOs are far higher, as you get multiple streams of income.
You can opt to have multiple buy to let’s in order to achieve the same income as an HMO, but it would make more sense in terms of managing your portfolio to just have one HMO with a higher yield than multiple properties to manage.
Your goal is to generate income, but there’s also a risk that comes with owning an investment property, the cost of when the property is empty. If you have an HMO with multiple occupants, then it’s very unlikely that you will have a time when the property is completely empty.
If you decide to do anything to the property like an extension or improvements, it can be considered a revenue cost.
Cons:
This is a mandatory licence from your local council and they are valid for five years, but it’s a lot of red tape and it can be hard to acquire them, especially for new investors.
They can often require a large deposit, even more so than a standard buy to let mortgage. The rates also tend to be higher and there is only a limited amount of companies that will offer the service.
Not all letting agents will take HMOs, so it can be hard to market and find tenants and on top of that if you want them to manage the property the fees are often a lot higher than a single let.
There is the possibility of having a high turnover of tenants as often they are young people, or even students, who are living there as a temporary stop-gap for cheaper accommodation.
There are costs associated with both single lets and HMOs, but HMOs are obviously far more expensive to run and maintain, generally being bigger properties with more upkeep. There are a lot of considerations to take into account before deciding which option is for you.
With a Single Let, generally, all you have to consider is the mortgage payments, letting agent fees, insurance and any ongoing maintenance that the building may require.
There’s a lot more to consider when looking at HMOs, here’s a list of some of the costs:
- Mortgage payments
- Letting agent fees
- Insurance
- Utilities
- Council tax
- Broadband & TV
- TV Licence
- Cleaners
- Maintenance
As there are communal areas, you have to cover a lot more of the costs like Broadband, TV & Cleaners that you otherwise wouldn’t have to consider. All these running costs add up significantly, with Inside Property Investing suggesting an average running cost of £1,572. That might scare you away, but remember the gross rental income from an HMO is of course far more, so the net profit is still healthy.
Being a landlord of an HMO is not for the faint-hearted and we typically would advise more experienced investors to go down that route, and the main reason is the management side. As a landlord of HMO you wear several hats, you’re a social worker, counsellor, detective, citizens advice, rent collector and everything in between.
Tenant selection is a critical part of both a Single Let & HMO, but even more so of the latter. HMO due to the nature of often attracting students and younger residents are generally more problematic than single lets, and with higher turnover, it makes tenant screening extremely important.
The tenant turnover is often an issue because of the type of accommodation, it appeals to students, professionals on short term contracts or people who at that moment can’t afford a single let home. Generally, these people are only looking to stay for periods of a few months, meaning you can have a bit of a never-ending cycle of tenants – requiring a lot of your time.
A further issue that you may or may not encounter, is if tenants don’t get along with each other. You can have one bad apple which causes several good tenants to move on wasting your time and energy, so you need to be able to identify that. It’s not like a single let where it doesn’t really matter as long as your tenant pays the rent on time.
In summary, the management of an HMO is a lot harder and more time consuming than a single let, although just with anything you can get lucky with your tenant choices – it’s just less likely!
It depends on you, and really, how much time you have and experience in property management.
HMOs are hard work, but there are high rewards. If you can dedicate the time and put up with the stress of running a property like that, it’s definitely worth considering. The higher earning potential of an HMO is obviously an attractive prospect, but in order to consider it, you should look for a significant increase in ROI when compared to Single Let properties.
The ROI, or yield on a single let typically lands anywhere between 5-8%, depending on the property and rental. In comparison for an HMO, you should be trying to look more towards the 15-20% mark, and typically you want a monthly profit of well over £1,000 a month, as it really is a lot more work!
Jessica Chambers
May 19th 2022
Share this post
Start your property portfolio today!
Single Let vs HMOs: The Best Strategy To Choose
If you have an interest in investing in property then you’ve likely heard of two of the most common methods of doing so, single let property and an HMO. If you don’t have the luxury of being able to add both options to your property portfolio then you may be wondering which strategy is best for you to adopt.
The spoiler alert is that there are both great options, but they both have their pros and cons – so let’s go through both options and help you decide which might be best for you in your situation.
A single let is when you buy a property and rent it out to a single tenant, it’s generally a lower maintenance option to being a landlord and is one of the most simple and hands-off approaches. It could be a family or an individual and as a landlord, you will be responsible for looking after the property and making sure that everything is working and habitable. You may also be responsible for paying any ground rate or service charge, however, the tenant is typically responsible for the household bills like gas, water, utility bills, council tax and more.
HMO stands for House of Multiple Occupation. It’s exactly how it sounds, a house or flat that is shared by multiple different tenants who essentially rent a room and any of the property’s communal spaces. Each of the rooms in an HMO is generally let completely separately, similarly to owning several properties, and it generates multiple income streams.
A lot of seasoned investors swear by single lets, no matter what alternative investment options they try. As with every type of investment, there are pros and cons, so let’s take a look at a few:
Pros:
When it comes to the time you want to liquidate the property, it’s far easier to sell as there is a larger pool of buyers than an HMO for example.
The tenants usually take care of all the utilities and other bills like council tax, so you don’t have to worry about them.
There is just a single tenant so the management of such a property isn’t as difficult as an HMO, and therefore a lot less time-consuming.
You won’t have to furnish the property as the majority of that will be done by the tenants, although a lot of properties are let with white goods in place which the landlord has to ensure is in working order.
Tenants for single let’s tend to stay for significant periods of time, leaving you with fewer void periods that can prove pricey.
Cons:
Having a tenant in the property obviously means that there may be some wear and tear, so you have to calculate these into your monthly costs, some tenants can also be more caring for the property than others.
We mentioned as a pro that tenants don’t tend to move that often in single lets, but when they do, you’ll have a period where you have to cover all the bills. If you have a multi-let, then this is a lot less likely to happen.
Typically properties with a lower value have a higher gross yield, but the income from them isn’t particularly significant. It’s one of the big mistakes investors base decisions purely on yield and not consider economies of scale.
HMOs are a desirable prospect for investors and young professionals or students looking for cheaper accommodation, it’s a win, win.
Pros:
It’s the biggest reason to purchase an HMO, the amount of profit you can make from it. The average yields of HMOs are far higher, as you get multiple streams of income.
You can opt to have multiple buy to let’s in order to achieve the same income as an HMO, but it would make more sense in terms of managing your portfolio to just have one HMO with a higher yield than multiple properties to manage.
Your goal is to generate income, but there’s also a risk that comes with owning an investment property, the cost of when the property is empty. If you have an HMO with multiple occupants, then it’s very unlikely that you will have a time when the property is completely empty.
If you decide to do anything to the property like an extension or improvements, it can be considered a revenue cost.
Cons:
This is a mandatory licence from your local council and they are valid for five years, but it’s a lot of red tape and it can be hard to acquire them, especially for new investors.
They can often require a large deposit, even more so than a standard buy to let mortgage. The rates also tend to be higher and there is only a limited amount of companies that will offer the service.
Not all letting agents will take HMOs, so it can be hard to market and find tenants and on top of that if you want them to manage the property the fees are often a lot higher than a single let.
There is the possibility of having a high turnover of tenants as often they are young people, or even students, who are living there as a temporary stop-gap for cheaper accommodation.
There are costs associated with both single lets and HMOs, but HMOs are obviously far more expensive to run and maintain, generally being bigger properties with more upkeep. There are a lot of considerations to take into account before deciding which option is for you.
With a Single Let, generally, all you have to consider is the mortgage payments, letting agent fees, insurance and any ongoing maintenance that the building may require.
There’s a lot more to consider when looking at HMOs, here’s a list of some of the costs:
- Mortgage payments
- Letting agent fees
- Insurance
- Utilities
- Council tax
- Broadband & TV
- TV Licence
- Cleaners
- Maintenance
As there are communal areas, you have to cover a lot more of the costs like Broadband, TV & Cleaners that you otherwise wouldn’t have to consider. All these running costs add up significantly, with Inside Property Investing suggesting an average running cost of £1,572. That might scare you away, but remember the gross rental income from an HMO is of course far more, so the net profit is still healthy.
Being a landlord of an HMO is not for the faint-hearted and we typically would advise more experienced investors to go down that route, and the main reason is the management side. As a landlord of HMO you wear several hats, you’re a social worker, counsellor, detective, citizens advice, rent collector and everything in between.
Tenant selection is a critical part of both a Single Let & HMO, but even more so of the latter. HMO due to the nature of often attracting students and younger residents are generally more problematic than single lets, and with higher turnover, it makes tenant screening extremely important.
The tenant turnover is often an issue because of the type of accommodation, it appeals to students, professionals on short term contracts or people who at that moment can’t afford a single let home. Generally, these people are only looking to stay for periods of a few months, meaning you can have a bit of a never-ending cycle of tenants – requiring a lot of your time.
A further issue that you may or may not encounter, is if tenants don’t get along with each other. You can have one bad apple which causes several good tenants to move on wasting your time and energy, so you need to be able to identify that. It’s not like a single let where it doesn’t really matter as long as your tenant pays the rent on time.
In summary, the management of an HMO is a lot harder and more time consuming than a single let, although just with anything you can get lucky with your tenant choices – it’s just less likely!
It depends on you, and really, how much time you have and experience in property management.
HMOs are hard work, but there are high rewards. If you can dedicate the time and put up with the stress of running a property like that, it’s definitely worth considering. The higher earning potential of an HMO is obviously an attractive prospect, but in order to consider it, you should look for a significant increase in ROI when compared to Single Let properties.
The ROI, or yield on a single let typically lands anywhere between 5-8%, depending on the property and rental. In comparison for an HMO, you should be trying to look more towards the 15-20% mark, and typically you want a monthly profit of well over £1,000 a month, as it really is a lot more work!
Are you looking to invest in your first property and become a landlord? It can be quite overwhelming, the amount of information that is out there can be quite hard to get started. One of the common queries or bits of advice we get asked for people looking to get into it is how exactly they should finance the property.
You might think if you have the cash to buy it outright, that could be the best option, but hold your horses as there are pros and cons to both sides of the coin.
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