Determining what kind of tenancy best suits a landlord or property manager's goals and particular management style is essential. Understanding the unique characteristics of HMOs and joint tenancies will equip a property manager to make informed decisions within the rental market.
What is an HMO?
An HMO, or House in Multiple Occupation, is a property where common areas exist, so facilities like the bathroom and kitchen are shared. This can include shared houses and bedsits, usually treated as an affordable option for tenants.
What are the advantages of an HMO?
Income
Multiple tenants reduce the risk of losing money through costly void periods. If one tenant moves out, the others can stay, so the impact on income is less severe.
Yields
Renting rooms individually can create more income for a property manager than renting the entire property as a joint tenancy. This means that there is the potential for supercharged rental yields when compared with single-let properties, which can dramatically boost a property manager's bottom line and investment return.
Demand
HMOs cater to several demographics, particularly students and young people. This means there is always a demand for them and a large number of potential tenants. HMOs are also some of the most affordable housing, which is why they appeal to young people and people on lower incomes.
Level up your student housing management processes with our blog.
Technology
In principle, it may be easier for student companies to rent out an HMO by separating it into room-by-room rentals instead of renting out the property on a single student contract. This is because most systems don't allow multiple units within a single property.
With Arthur, the property can be converted to a room-by-room rental and all kept under one roof so that all property certifications like EPCs and GSCs are kept in one place, making them easier to keep track of.
What are the disadvantages of an HMO?
Turnover
Naturally, with the accessibility of HMOs, tenants have a high turnover rate. This can lead to periods of downturn while the costs of finding new tenants rise. Another issue associated with this is that moving different tenants in and out can quickly increase the wear and tear within the property.
This can cause issues with finding and returning deposits. Learn how to keep on top of them.
Responsibility
Managing a property is all about relationships—and with an ever-revolving wheel of new tenants, it can be challenging to establish a good rapport. This can often make managing HMOs much more difficult, as a property manager has to handle more potential conflicts with tenants.
Alongside this, communication with tenants can become confusing, especially if a property manager uses more than one method. Arthur can tighten up communications with its capability to seamlessly connect everything within one system. This makes conversing with tenants and landlords much more efficient.
Compliance
An HMO license must be renewed every five years from the date of application. Failure to meet license conditions can result in a criminal conviction, or the person in breach can be issued a financial penalty of up to £30,000.
Keeping up to date with all of the conditions associated with the HMO license can be difficult, and property managers risk becoming non-compliant as long as they struggle to keep track.
What is a joint tenancy?
A joint tenancy is a form of renting in which two or more parties make a legally binding agreement to share the property. These people could be friends, relatives, or business associates, for example. If one of the owners were to die, their share would automatically transfer to the surviving owners, which is referred to as the right of survivorship.
What are the advantages of a joint tenancy?
Commitment
Usually, tenants who take on a joint tenancy plan to rent a property together for a long time. This is because of the nature of the agreement, which makes it more difficult to exit the tenancy due to ownership structures.
This leads to fewer costs associated with property managers having to deal with fewer tenancy changeovers, inventories, void periods, check-ins, and viewings.
What are the disadvantages of a joint tenancy?
Relations
Joint tenancy means the tenants rent the whole property together. This makes it difficult to remove only one person if things go wrong between the tenants. If the relationship between people in the property becomes unstable or sour, this can cause significant problems for the other tenants and force them all to uproot.
Relationship strain
If disagreements arise about the property or finances, particularly, this can cause strain between the tenants within the property. However, this can also extend to the property manager, as they could have dealings with a property that does not meet rent deadlines on time because of one tenant.
Final thoughts
The decision between managing an HMO or a joint tenancy depends on the priorities of the property manager. While HMOs can offer higher yields, they also have frequent tenant turnover. On the other hand, joint tenancies offer a more straightforward management experience but limit control over exits. Ultimately, the best choice hinges on risk tolerance as a property manager or landlord.
