House of Multiple Occupancy: how buy-to-let can still yield 8.9%

Landlords have had a hard time recently, but change your rental strategy and it's still possible to make yields of up to 8.9% from buy-to-let.
If you want to make big returns on your buy-to-lets you need to let them out on a room-by-room basis, according to buy-to-let mortgage specialist Mortgages for Business.
The average yield for a home rented out as a house of multiple occupancy (HMO) – where each room is let individually – is 8.9%, according to the research.
In contrast, Mortgages for Business found that the average yield for a ‘vanilla’ buy-to-let where the whole property is let on one tenancy agreement was far lower at 5.6%.
The research also found that multi-unit rentals, such as a block of flats, offer an average annual yield of 8.1%.
This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.
However, the yield for HMO has dropped from 9% the previous year, something that shows its growing popularity, according to Jeni Browns, sales director at Mortgages for Business:
“The attractiveness of HMOs as a buy-to-let investment has increased in recent years not only because of the higher yields on offer but because serious investors are keener to diversify their portfolios.
“With more landlords vying for these properties, prices have been pushed up more quickly than the rents which, I would suggest, is one of the main reasons we are seeing their yields drop, although, I suspect that the granting of fewer new HMO licences is also having an impact.”
Get a landlord insurance quote from Axa
Landlords buying cheaper properties
The average value of a standard buy-to-let property – one where all the rooms are let under one tenancy agreement – purchased is almost 20% lower over the past 12 months lower at £375,409 compared to £305,283 in 2016.
One reason for this could be that the additional Stamp Duty rules mean landlords are looking for cheaper properties to invest in so that they pay less initial tax and potentially higher yields.
Get a landlord insurance quote from Axa
Surging popularity of tax-efficient companies
The research also found that more and more landlords are buying properties through a limited company.
As we explain in this piece, investing via a company lets you benefit from significant tax breaks, including paying corporation tax rather than income tax, and still being able to deduct mortgage interest as an expense.
In the final quarter of 2016, only 31% of buy-to-let properties were bought through a company, but that had risen to 49% by the end of last year.
Of course, this strategy isn't suitable for all landlords. Read more about this rapidly-growing area in our guide BTL companies: a savvy move or mistake?
Search for a cheaper buy-to-let mortgage with B2B Finance
This article contains some affiliate links, which means we may receive a commission on any sales of products or services we write about. This article was written completely independently.
Most Recent
Comments
-
Perhaps I didn't phrase my comment clearly enough: There are people for whom renting as opposed to buying is the best option. e.g. - Students who need accomodation for university - People on short term work contracts for whom buying is not economical - People who due to low earnings or other reasons cannot get a mortgage from a lender. - etc. I think it's fair to say there is hard evidence of these people existing. If they do exist, there need to be landlords to rent their accomodation to these people. Therefore we need landlords.
REPORT This comment has been reported. -
"We need BTL - there are enough people who don’t want to buy" I've heard this assertion again and again and yet in over 10 years of debating BTL'ers I have yet to see any hard evidence supporting it. And no, we don't "need BTL" anymore than we "need" all public roads & motorways sold off to private companies; and for largely the same reasons.
REPORT This comment has been reported. -
We need BTL - there are enough people who don’t want to buy, so continually scapegoating BTL landlords and putting up higher and higher barriers to BTL as a “solution” to the housing crisis just stinks. And it’s so much the easy option. When will the government pluck up the courage to commit to a real solution? Raising interest rates and letting house prices fall naturally to historical averages would be a start.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
08 February 2018