‘I gave up 100-hour work weeks to be an HMO landlord earning 17pc yields'

Telegraph

3 days ago

For most of her life, Kim Opszala's plan was to climb the corporate ladder. But when she got there, she rapidly discovered the view from the top is not quite as idyllic as she had imagined.
So Opszala pivoted her plans. Fed up of working 100-hour weeks and never seeing her family, she decided to scale back her career as a lawyer.
This would mean taking a hefty pay cut. To make up the difference, she has built up a sideline property portfolio, picking one of the most lucrative rental sectors.
Shared houses – officially known as a house in multiple occupation (HMO), and defined as a property rented out to at least three individual tenants sharing amenities like kitchens and bathrooms – provide landlords with significantly richer pickings than regular privately rented homes.
Recent research by Paragon Bank shows British landlords currently make an average rental yield of 7.1pc. In England, they range from a high of 7.9pc in Yorkshire and Humberside to a low of 5.8pc in Greater London.
But HMOs can deliver far higher returns – sometimes three or four times as much, according to estate agent Hamptons.
It found that the highest gross profits are in the North East and North West, with Stockton-on-Tees, Burnley and Rochdale landlords recording gross yields of 19.6pc, 19.1pc, and 18.6pc respectively.
The East Midlands is also a good bet, with South Derbyshire, Ashfield and Mansfield all recording gross yields of 17pc to 18pc. Even in the South, where high buying prices cut into profits, HMO yields are comfortably twice the overall average.
'We wanted to replace my salary, so we picked HMOs'
Opszala's first experience of HMOs was living in one as a student in Aberystwyth, Wales.
'It was awful, very tired, the furniture was all old and mismatched, and there were six of us and just one shower and one bath,' she recalls. 'It was great living with friends, but the accommodation was very substandard.'
In 2018, Opszala, 40, and her husband Mike, 44, bought an HMO in Milton Keynes, where they were living at the time. The couple, who now live in a village in Staffordshire with their five-year-old, now own eight properties, mostly in Milton Keynes and Northampton.
They collectively house more than 50 people, and run KoMo Properties. They are in the process of adding two more shared houses to their portfolio.
'Why did we concentrate on HMOs? It was for cash flow reasons,' says Opszala, who as a lawyer specialises in mergers and acquisitions.
'HMOs have a much better return. When we started, I was working at one of the largest law firms in the world, and Mike was working nights as a chef. We were like ships that passed in the night. It wasn't sustainable. We wanted to replace my salary so that I wouldn't have to work like that.'
That first HMO currently earns the couple a yield of almost 17pc. KoMo's income has allowed Opszala to stop working full time. She takes law contracts for three to six months per year, and Mike quit cheffing in 2022 to work on the business full time.
Like the couple, many landlords prefer to invest close to home for the sense of safety, plus the possibility of managing their rental property themselves. Although the highest yields are in the North, southerners can also find pockets of opportunity.
The highest yields are to be found in King's Lynn, West Norfolk, Ipswich and Somerset, which are all around 16pc according to Hamptons. The average price of an HMO in these areas hovers around £200,000.
In London, your best bet is to look in the suburbs. In Havering, an average HMO costs £414,400, and returns gross yields of 12.8pc. Other HMO hotspots in the capital are in Sutton and Barking and Dagenham.
The university cities with the best gross yields are led by Derby (15.5pc; average price £182,000), followed by Leicester and Kingston upon Hull.
The small print
But before you rush to invest, bear in mind that there are downsides beyond HMOs' headline figures.
Howard Levy, of mortgage broker SPF Private Clients, warns landlords who want to follow in Opszala's footsteps to pay attention to the small print. Interest rates for HMOs tend to be slightly higher than on standard buy-to-lets.
Like-for-like examples are tricky, but for five-year fixes, the cheapest standard landlord mortgage is on offer with Birmingham Midshires at 3.71pc, plus a 3pc fee. For an HMO mortgage, Vida Bank offers one at 4.2pc, with a 7pc fee. Insurance premiums are also likely to be higher.
There are also legal hurdles to overcome before you can launch your HMO in the first place. Some of the Opszalas' houses were already designated as HMOs when they bought them. Others were not, and in many locations, including both Milton Keynes and Northampton, this means applying for planning permission.
Last month, Opszala found herself addressing a council meeting which was deciding on her application to use a house as a new seven-bedroom HMO, in the face of almost 200 local objections.
'It was al,: 'They are going to house criminals, there will be no parking, there will be rubbish on the streets, the whole area will go down',' she says. 'I was able to explain why HMOs are needed, and how we run them, and it was approved. But it is a risk, quite stressful and time consuming.'
When up and running, HMO landlords also need to meet higher safety standards. According to the British Landlords Association, this means fitting half-hour fire doors and, as with all private rentals, gas safety checks must be conducted annually.
HMO electrics need to be checked every five years. Other private landlords need to commit only to making sure the electrical system and appliances are safe, with no regular inspection programme.
All rental properties must be fitted with smoke and carbon monoxide alarms, but large HMOs also need fire alarms and extinguishers. HMOs also need to be licenced by the local council, and costs can be in excess of £2,000 per year depending on location.
Most of the Opszalas' tenants are graduates and students fresh out of halls of residence. This means that a certain degree of hand-holding is required, she says.
'It is generally things like using the washing machine and the dryers, or a lightbulb will go and we will have to educate them on how to change it.'
The compensation for the couple is freedom. They have been able to indulge their passion for travelling too, taking regular family campervan trips around Europe while running the company remotely.
Swapping a pension for HMOs
Neil France got into the HMO business because he is self-employed – the 68-year-old runs international leadership training programmes – and was concerned about what could happen to him should he ever become too unwell to work. He was also deeply disappointed in the performance of the pension he had dutifully been paying into for years.
In 2009, he stopped those payments, and instead bought a house on the Wirral which had belonged to his wife's aunt, renting it out to a succession of families in the year that followed. He then bought three more properties there.
But by 2013, he reviewed his portfolio and decided that 'normal' rental properties weren't making enough profit – their gross yield is 5pc or 6pc. So he bought three HMO properties close to his home in Chelmsford, Essex, which make 10pc to 12pc.
France doesn't find his HMO tenants – who are mainly young professionals – any more or less likely to cause trouble than his private renters, and has found that a system of 'ruthless referencing' helps weed out bad apples.
But HMOs do inevitably generate more work, what feels to France like an endless, wearying flow of weekend calls requesting assistance for everything from slow-running Wi-Fi to leaky showers to fights over bathroom cleanliness.
Over the past 16 years, he has continued with his day job, resulting in a good amount of equity in his portfolio. In the same period, times have grown tougher for landlords – notably thanks to the successive increases in stamp duty in 2014 and 2016 and the end of tax relief on their mortgage interest payments from 2017.
'We have been made pariahs by successive governments,' says France. But with four grown-up children to consider, he is resisting the temptation to sell up. Instead, he is taking equity out of his houses and gifting it to his children, in the hope that he can lower their eventual inheritance tax bill.
'I'm not sure it is worth the hassle'
Another HMO malcontent is Xavier Archibold, who began investing in rental properties when he received an inheritance in 2016. He now has 20 of them – 16 regular properties and four HMOs, each with four or five bedrooms.
All are close to his home in Leeds, chosen partly because Archibold, 52, a consultant in the transport logistics industry, does a lot of the management himself. 'And the North is doing very well in terms of price growth,' he says.
His advice to others is that, as with all rental properties, choosing the right HMO is essential. They need to have good public transport links and be close to amenities, and the bedrooms need to be spacious and, ideally, en suite.
'The number of people who turn their noses up at a shared bathroom is unbelievable,' he says.
Xavier says his HMOs earn good money – each room is charged at between £450 and almost £800 per month, depending on location, size and amenities – bringing in a gross yield of around 10pc to 12pc, compared to 5pc to 6pc for his regular rentals.
Despite this, he is considering selling off his HMOs after growing tired of refereeing arguments about washing up, doing constant maintenance and dealing with personal problems from job losses to mental health crises.
'It is constant little things,' he says. 'I'm not sure if it is worth the hassle. You have got five tenants for the price of one – and one of them is bound to be difficult. Even if they are fine, if one person moves out it takes time to replace them, and that is all your profit gone for that month.'