Seasoned property owners and real estate speculators have likely heard of HMO and SA, but when comparing Serviced Accommodations with HMOs, which is superior? Both represent high-cash-flow investments with frequent tenant rotation; HMOs and SAs have many similarities but are strikingly dissimilar in other respects. This handbook offers a side-by-side assessment of these two forms of lodgings, primarily aimed at those keen on investment, broadening their portfolio, or deriving their livelihood from such revenues.
What is HMO?
First and foremost, it’s crucial to comprehend each term. An HMO, or House of Multiple Occupation, is a form of property where at least three unrelated individuals reside who don’t constitute a single household. An HMO is regarded as the only, or primary, dwelling of its inhabitants.
If the landlord resides in the property along with more than four other individuals, and the building spans three or more storeys, an HMO license is necessary. Yet, licensing regulations are council-specific – certain councils have ‘additional licensing’ that may also be obligatory. Therefore, before embarking on an HMO venture, gather further information from your local council first, as this certainly distinguishes the HMO from Serviced Accommodation (since councils are often unfamiliar with SA).
- Here are several scenarios where individuals might seek an HMO:
- University students living in their city of study
- Seasonal employees (e.g., those relocated for work)
- Professional employees (e.g., those starting a new job)
- Contractors Corporate clients
Although a superb long-term investment, HMOs require a significant initial investment and management. A House of Multiple Occupation (HMO) is a category of property suitable for short or long-term rental, typically a minimum of six months.
HMO configurations can vary greatly, such as two couples living together (2 households) or three friends sharing a property (3 households). A small HMO can accommodate up to 6 tenants sharing facilities, while a large HMO can host seven or more tenants utilising shared amenities.
Several unique attributes of Houses of Multiple Occupation include:
- Three or more occupants
- Licence necessity for four or more beds
- More than one household (either a solitary individual or family members cohabiting)
- Common facilities
- Understanding of HMO regulations and compliance: Managers must be conversant with legislations around letting family homes, acquiring licences or Assured Shorthold Tenancies (ASTs), and much more.
What is Serviced Accommodation?
Serviced accommodation, also known as SA, is a type of fully furnished lodging offering services akin to a hotel while providing the comfort and convenience of a home. It’s designed to function as a ‘home away from home,’ and caters to both short-term and long-term stay requirements.
The majority of guests seek serviced apartments as an alternative to expensive hotel stays. While most SAs charge a nightly rate similar to hotels, it often proves more cost-effective for groups of two or more. Some additional features of serviced accommodation include:
- Often situated within a residential building
- Availability for both brief and extended stays
- Round-the-clock helpline support
- Regular housekeeping services (weekly or more frequently if needed)
- Fully furnished apartments, equipped with a complete kitchen
- A lounge area and at least one bathroom
- One or more separate bedrooms (or a specific sleeping section in studio flats)
- Inclusive of Wi-Fi and all utility bills
- Facilities such as television and up-to-date technology.
Serviced apartments bear more resemblance to hotels than houses due to the transient nature of the guests’ stay. The guests have a primary residence elsewhere; hence an SA cannot be regarded as the guest’s sole or main dwelling. However, while providing a comparable level of comfort, SAs are not as pricey as hotels.
Overall, a serviced apartment is a furnished accommodation option that can cater to both short-term and long-term stays.
Where would I make more money? SA or HMO?
Both offer solid revenue streams, yet there’s no one-size-fits-all solution!
Much like any business endeavour, achieving financial success with SA and HMO depends on a variety of factors: the location, nature of the property, whether it’s contemporary or traditional, market demand, local infrastructure, among others.
It’s not just the market conditions and industry landscape that count: your personal objectives also matter. What do you intend to accomplish with this property? There are numerous possible objectives:
- Expanding your property portfolio
- Swift return on investment
- Establishing a reputation in the market
- Purely financial gains
Another vital question is whether you plan to self-manage or entrust it to professional managers?
Many individuals mistakenly believe they’ll make more profit by self-managing, but often find themselves losing money due to lack of experience, practical skills, and market understanding.
Furthermore, are you contemplating short-term or long-term growth? Employing a management company can be beneficial, particularly for long-term development – they play a pivotal role in fostering relations with industry partners and aiding your gradual expansion.
Area and Location
An additional crucial element to weigh up before initiating either enterprise is the locality of your property. This aspect is frequently overlooked by many, but it’s often the primary factor that entices someone to rent a property. For instance, if your flat or house is located near a university, your target demographic could be students looking for temporary accommodation (HMO). Thus, understanding the characteristics of your area is key to successful property investment.
If your property is situated in a central district bustling with businesses, employees and their companies might be on the hunt for short-term solutions that are more budget-friendly than hotels (SA). Tourist hotspots also particularly benefit from short-term options, given that most visitors stay for a weekend or less than a week (SA).
The property’s location is among the most pivotal factors to consider. The right choice of location for your investment can have a significant impact on your bookings, pricing strategy, and the probability of maintaining high occupancy rates.
“Why is that?” you might wonder. Contemplate the perspective of the guest or tenant: what would prompt them to book your property? Of course, amenities, comfort, and cost are important considerations. But initially, they are reserving a place to stay in a particular area for specific activities. They might be embarking on a holiday, travelling for work, pursuing studies, or simply seeking a two-day change of scenery.
If you’re keen to learn more about the plans of local councils and how they could influence your investment, check out their respective websites:
- Luton Council
- Milton Keynes Council
- Bedford Council
- Stevenage Council
- Northampton Council
Regardless of your preference between HMO and SA, if you’re a novice in this field, it would be prudent to reach out to a property management firm and seek their counsel. A solid beginning is key to optimising results and profit.
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