HMO or buy-to-let – which investment is right for you?

October 2, 2020

Here at Fabrik Invest, we keep our ear close to the ground when it comes to the kinds of property investments that are being offered. Of late, there’s been a lot of talk about secondary houses and houses in multiple occupation (HMOs) being offered with yields in the region of 8-12% in cities such as Glasgow. 

A tempting headline, perhaps, but we wanted to look at the real story behind these kinds of properties and see how they held up when compared to newly built buy-to-let opportunities. Fabrik’s CEO, Steve Jacob, owns both secondary houses and buy-to-let apartments, so we called on his investment experience.

“It’s surprising how different investing in a secondary property and a brand-new buy-to-let apartment can be. I think a lot of investors underestimate just how hands-on secondary properties can be, as well as how much it costs to maintain them. Older properties certainly carry more risk in terms of their potential need for repairs.”

Steve Jacob, CEO, Fabrik Invest

Issues such as broken boilers, damp, cracks and general, age-related wear and tear can quickly mount up with secondary home/HMO investments. Not only are they often costly to deal with, they require plenty of time and effort on the landlord’s part – or else on the part of a management company (which comes with its own cost attached). It’s not unreasonable to budget 10% of your annual income to cover maintenance costs with an older property. 

Newly built homes come with a 10-year warranty and insurance guarantee, meaning that investors in buy-to-let properties are unlikely to have to worry about maintenance issues becoming either a financial or a time drain.

“HMOs certainly suit some investors. Their focus on maximising income by providing as many bedrooms as possible is tempting if the investor is happy to commit plenty of time and energy to the property. Those looking for a more hands-off investment, on the other hand, might be better suited to a buy-to-let apartment.”

Dale Anderson, Managing Director, Fabrik Invest

The potential for capital appreciation also requires careful consideration. Houses and apartments can differ substantially in this respect. Liverpool provides a good example of this. Over the past five years, according to Zoopla, terraced houses in Liverpool have increased in value by 2.71%. Apartment prices, meanwhile, have gone up by 7.47%. 

One of the most exciting buy-to-let developments in Liverpool at the moment is The Roscoe, where one-bedroom apartments are available from £135,950, with 6% net yield guaranteed for two years. Located in the affluent Georgian Quarter – flagged by The Times as one of the best places to live in the UK in 2020 – the homes are just half a mile from the L1 shopping district.  

With any investment, an exit strategy is always important. Apartments tend to have the upper hand in this respect. Investors looking to sell up have the potential to sell the property as an investment or to an owner-occupier. HMOs, on the other hand, will likely appeal only to fellow investors, thus limiting the pool of potential buyers significantly.

“It’s great to have plenty of choice as to how and where you can make your money work for you. However, when it comes to property investment, there’s a real need to be cautious of the headline yields that HMOs seem to present. Newly built apartments tend to present a safer investment option for hands-off investors.”

Dale Anderson, Managing Director, Fabrik Invest

To find out more, why not get in touch with the Fabrik Invest team? You can call us on 020 8175 9891, email enquiries@fabrikpropertygroup.com or visit www.fabrikinvest.com.

Share This Post:

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn

Wayne Venter

International Business Development Manager

Wayne has been in the property industry for over 17 years. He started out selling residential properties in the northern suburbs of Sandton, South Africa, for one of the bigger real estate brands, before moving to a boutique, Johannesburg-based property developer. He worked at a senior level, specialising in residential developments on the north coast of KZN and various other areas of Northern Johannesburg.

Wayne moved to selling luxury, free standing homes and apartments in Sandton, Johannesburg in 2006, having joined the Country’s leading real estate brand and within six months was leading the team. In 2008, he began to focus exclusively on the luxury apartments in central Sandton, priced from approximately R2 million to R60 million. Over the years, he has also added commercial property sales and rentals to his repertoire, as well as building his own investment property portfolio between 2011 and 2018.

By 2018, realising where the South African property market was headed, he sold out of his investment property portfolio to de-risk and went looking for a real estate company to buy into. South Africa’s property market was extremely volatile at that time, so Wayne took the initiative and moved to London to work in property in the UK.

Join our newsletter

Get all the latest news from Fabrik Invest.

Edward Snell

Senior Property Consultant

I live in Spanish countryside with my wife and our 11 rescue dogs.

Originally from Bedford, I have two sons, two step children & 6 grandchildren.

I have a keen interest in property investment and over the years have built up a personal portfolio for the purposes of rental income and capital growth.

I have over 20 years’ experience in property investment, both in the UK & overseas.

My other interests include animal welfare, football, motorsports, travel and music

My personality is of an even temperament and I enjoy the cut and thrust of doing deals.
I am happy and successful in what I do & take great pleasure in providing my clients with successful outcomes.

I’m a good team player but work well as an individual.

Daniel Harburn

Property Sales Consultant

Daniel had a passion for property from a young age so he began his working life by undertaking a plumbing apprenticeship for a large well known UK developer to pursue a career in construction. After qualifying he soon realised that building relationships was a preferred skill of his due to his loyal and trusting nature.

From then on Daniel launched his career in sales where he worked his way to to a high performing sales person at a creative media company. Part of Daniels success in accumulating clients over the last 10 years is put down to his diligence in customer experience.

Daniel has a keen interest in golf and also in keeping himself fit which is essential as he and his fiancé have 4 year old twins, Jacob and Sofia who keep them both on their toes.

Contact Us

Download Our Free UK Property Guide

Thank you!

We will be in touch.