Thinking of investing in Student HMOs?
Times have moved on since The Young Ones in the 1980s, and with the annual student changeover happening like clockwork each July, there’s no better time for landlords and property investors to think about the opportunities in the student HMO market.
Houses in Multiple Occupation (HMOs), particularly those catering to students, have steadily risen in popularity across the UK. These properties, typically consisting of three or more bedrooms let to students from the local universities or colleges, offer a range of advantages for both experienced and novice landlords alike.
Higher overall rents
One of the key attractions of investing in student HMOs is the potential for exceptional rental yields. Unlike traditional single-family lets, student HMOs are usually rented out on a room-by-room basis, which dramatically increases overall rental returns. In prime university cities such as Leeds, Nottingham, Birmingham, and Manchester, demand for well-located student accommodation remains high. Landlords in these markets can often achieve total rents that are 25-40% greater than what would be possible through a standard single let, making student HMOs a particularly lucrative option compared to other buy-to-let prospects.
On top of this, the demand for student accommodation is both strong and predictable, thanks to the cyclical nature of the academic calendar and the ongoing international reputation of UK universities. Each year, a new wave of students arrives, seeking convenient and affordable places to live. This regular influx means that landlords can usually look forward to full occupancy well in advance of the September start dates, with many students securing their accommodation months ahead of time. As a result, void periods, which can be a major concern for many landlords, are far less common in the student HMO market. The practice of group bookings also helps maintain high occupancy rates, as students often find replacements amongst their peers if someone decides not to stay for the full term.
Another significant advantage is the reliability of rent payments. Most student tenancies require a parental guarantor or advance payment, which provides landlords with increased peace of mind when it comes to rent collection. It’s not uncommon for students pay significant portions of their rent upfront at the start of each term, particularly if they receive maintenance loans or scholarships. The presence of a guarantor also incentivises prompt payment and helps safeguard landlords against the risk of arrears. For students, maintaining a good payment record is important for their future living arrangements, further motivating them to meet their financial obligations.
Strong and reliable marketplace
The strength of the student HMO market is also noteworthy. Even during economic downturns or periods of national uncertainty, student accommodation has historically performed well. Higher education is often counter-cyclical, with enrollments rising when job opportunities are scarce. This, combined with continued government investment in the sector and the UK’s global reputation for higher education, helps ensure ongoing demand for student HMOs. Many landlords found that, even during challenging periods like the COVID-19 pandemic, most students retained their tenancies for remote study, or were quick to return once restrictions were lifted.
Ongoing management
In terms of management, it’s worth knowing that student HMOs often require a more hands-on approach compared to single lets. The annual turnover, the increased number of tenants, and high usage of communal areas can present challenges. Yet, there are a number of specialist HMO managing agents, such as Urpad, who are supported by advanced digital tools that make tenancy management easier and more efficient than ever. From facilitating online bookings and digital lease signings to streamlined maintenance reporting, landlords can now access seamless solutions, even if they prefer a hands-off investment.
Student HMOs also present excellent opportunities for improving the condition of the property in order to extract more value from them. Many student properties are older Victorian or Edwardian terraced houses that can be significantly improved. By adding en-suite bathrooms, high-speed broadband, and comfortable communal areas, landlords can command higher rents and appeal to increasingly discerning student groups. Upgrades that improve energy efficiency, such as modern insulation and windows, are now more important than ever, attracting eco-conscious students and reducing running costs in the face of rising utility bills.
Talking to the taxman
From a financial perspective, the tax treatment of HMOs can also be advantageous. Landlords can often benefit from certain allowances and offset expenses against their rental income, improving overall returns. This all goes to show that well-located, well-maintained HMOs in university cities consistently experience strong capital growth, providing investors with both an attractive income stream and the potential for long-term appreciation.
Most definitely worth investigating
In conclusion, the student HMO sector remains one of the most dynamic and rewarding parts of the UK property market. With robust and predictable demand, above-average rental yields, resilient cashflow, and opportunities for property improvement, student HMOs are set to continue attracting bold and strategic investors.
If you’d like to talk to one of our specialists about the HMO opportunities, whether student or otherwise, please feel free to contact us for a chat.