In a low interest rate environment such as we have collectively experienced since 2009 here in the UK and in much of the ‘developed’ world, many investors, landlords and developers who seek to hold and not sell a property for profit have been looking to enhance their property’s monthly rental income.
Some twenty years ago it was not that difficult to find and fund residential buy to let deals with gross yields of 8% in London and often well above 10% in many cities and regions of the UK. In some cases, mostly in low value areas, a 20% gross return was not uncommon, albeit the net returns with bigger voids and maintenance cost often ate a fair bit into the theoretical profits.
Today that era will likely seem like a ‘fantasy land’ to many younger readers, when we look at current property values and achievable net yields, where in inner London and other more prosperous city locations, many investors will now accept a 2% net or less return. The main investment gains these days are from capital growth and from learning how to best apply ‘forced appreciation’ via internal reconfiguring or from planning value uplifts. To be clear, I am referring to investment properties, which are owned and not controlled via option style contracts or other creative strategies such as assisted sales.
As such it became an increasingly popular for investors and landlords to look at the HMO market to achieve - at least in theory - a much higher net return by letting out on a ‘per-room’ basis. The HMO market has now rapidly evolved to a stage where a new category of ‘Co-Living’ has been created alongside that of ‘boutique HMOs’, which cater for aspirational tenants who are prepared to pay for a higher standard of accommodation.
The recent Pandemic has of course caused severe disruption to parts of the broad HMO sector as international students, EU workers and city centre office-working tenants became increasingly in short supply. This resulted in many anecdotal tales of market saturation of HMO room supply in some areas last year. It was a trend that was already becoming evident some five or so years ago and as such, some previous HMO landlords and investors have sought greener pastures elsewhere.