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Is this the next property scandal brewing – and are investors being sold too many HMOs?

Are developers selling a dream with HMOs or a future nightmare?

As an agent with 15 years in the letting industry, I used to find that when there was a manageable amount of this type of accommodation on the market you could fill the rooms with decent tenants for a reasonable rent.

Over the last few years, companies have sprung up everywhere offering to source, renovate and manage HMOs – with promises of huge returns and future riches.

The reality we are seeing is very different. In my area thousands of rooms have been created, but for a market of maybe just hundreds of people.

This has resulted in:

  • Room rates plummeting.
  • Many unfilled rooms.
  • Lots of problems due to these houses not being built to home this amount of people.
  • High maintenance and annual refurbishment costs.
  • Anti-social issues.
  • High level of maintenance and tenant issues.
  • Quality tenants shunning HMOs due to bad experiences with shared houses.
  • The quality of the HMO tenants is dropping in line with the prices.
  • Many landlords saying that for the first time they are really struggling to find tenants for their HMOs.

This has had a knock-on effect meaning that apartment/flat prices are tumbling due to lack of demand as HMOs have flooded the market and lured in tenants who would otherwise have had their own apartment.

In turn, apartment prices have had to drop to try and compete with HMO prices.

It is the same with the student market as shared houses have taken a real bashing this summer.

The only winners here are the developers who are selling a dream that is not a reality.

They get paid handsomely for sourcing and renovating, so tenanting and managing is just a nice little bonus.

I worry for landlords who have sunk all their money into HMOs, as if the rent does not cover the mortgage you will find an HMO very difficult to sell.

The Government’s attack on landlords financially has created this market as developers have seen the opportunity to sell a dream – but that is what it is – of making thousands of pounds each month in rent from converted terraces.

HMOs have created an over-supply of rental accommodation in our area, with the level of demand not having risen to match it.

To me, this has the feel of the property clubs of 15 years ago that were selling similar dreams with promises of sky-high rental returns that in reality were unachievable.

The end result was that thousands of investors had their properties repossessed and ended up going bankrupt. I have a bad feeling we are going to see this again in the next few years.

The only winner I see in the long run is the developer.

As always, the freehold family homes have performed well in the rental market and this is the property type we advise all of our investors to look at.

I would be intrigued to see what other agents’ thoughts are on this.

I am sure that in places like London, demand will always outstrip supply, but I do not think this is the case for the rest of the country.

Bill Rockett owns Rockett Home Rentals, in Newcastle-under-Lyme

Source: Property Industry Eye