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A GUIDE TO HMO PROPERTY INVESTMENT

Many experienced property investors are turning their attention to HMOs and achieving much higher rental yields as a result. Find out what a HMO is, why they are so popular and how to finance these properties.

 

What is an HMO?

A property is considered to be a house in multiple occupation (HMO) if at least 3 tenants live there forming more than 1 ‘household’ and share facilities with other tenants.

HMOs can have a range of tenants such as students, professionals or for social housing.

 

Why are HMOs such a popular investment?

There’s no doubt that HMO properties are very popular with landlords, the main reason for this is the fact that the rental yield is much higher than with a standard single household type let.

HMOs are let on a ‘per room’ basis i.e. the rent generally covers the use of 1 lockable bedroom and use of the shared facilities such as the kitchen and bathroom. This is in contrast to a single let whereby the rent covers the whole property.

As an HMO has scope for multiple tenants, if a tenant was to move out or to stop paying rent for any reason, there will likely be other tenants still making payments. For a landlord, this can help cash flow, especially if the property is mortgaged.

This isn’t the case with a single let, meaning there can be a greater risk of rental voids. As the demand for affordable housing grows, so does the popularity of HMO style investments to landlords.

 

Are there any drawbacks of HMO property investment?

Like most property investments, there can of course be drawbacks when investing in an HMO.

The main factor when considering investing in HMOs is the interest rate of the mortgage. As this is a more specialised area of investment you may need a special HMO mortgage product, this almost certainly means the interest rate will be higher than with a standard buy to let. As HMO rental income is higher compared to a buy to let, there is still a good profit to be made even if you are paying a higher interest rate.

As there are multiple tenants this can mean multiple tenancy agreements and a greater turnaround of people moving in and out. As such HMOs can be more time consuming to manage compared to a single let.

You must also consider the start-up costs when buying a property to let as an HMO. As each room is let individually, you must consider the fire regulations and things such as waste disposal and planning regulations.

 

What finance is available for HMO properties?

As HMO’s have become more popular the number of lenders offering HMO mortgages has increased, this means a greater choice of products. Interest rates and deposit requirements vary depending on both the property type and the applicant’s profile.

A seasoned landlord generally needs to put down a deposit of 25% whereas a first-time buyer would be expected to pay a 35% deposit. A low-value property or a property with a large number of bedrooms may require a larger deposit, even if you are an experienced landlord.

As with any mortgage, there are other factors to be taken into account such as credit history and personal earned income.

 

What should I look for in a potential property?

When considering properties, there are important factors that need to be taken into account to make sure your property investment is successful.

The location should be researched to make sure there is a good demand for HMO properties in the area, if it’s near a university, hospital or near a large town or city you would expect demand to be high, it is worth speaking to a local letting agent to confirm this.

If the area is already flooded with HMO properties the local authority may impose an Article 4 Restriction. This restriction means you cannot simply convert a property to an HMO, you must apply to the local authority for approval.

Another thing to look for is the size of the rooms, depending on the number of tenants you have, the bedrooms and shared areas have to be a certain minimum size. It is easier to buy a property that is already set up and running as an HMO although you may pay a premium for this.

 

What are the key considerations before moving forward?

HMO’s can certainly be a good investment but you should weigh up the pros and cons compared to other types of lets.

You should also compare buying the property in your personal name compared to buying through a limited company. A good accountant will be able to provide advice on the tax implications involved in each route.

Due to the work involved in running the property, it may be worth using a local letting agent to manage the property for you, they will look after the property and deal with tenants, although you will have to pay for the service.

When looking for a suitable mortgage it is worth speaking with a specialist HMO mortgage broker who fully understands the market. Again, there may be a fee to pay for the service but this will often save you money in the long run.

 

Business

TAPPING INTO THE RIGHT MINDS

David Holden-White, co-founder and managing director, techspert.io

 

The world is awash with information. Analyst house IDC estimated that more than 59 zettabytes of data would be created, captured, copied and consumed in 2020, and that the amount of data created over the next three years will be more than what was created in the past 30. The boom in consumer technology and the rapid improvement in mobile connectivity has meant that the 48% of the globe that owns a smartphone has near instant access to all the digitised, publicly available information in the world in their pocket.

 

A world overloaded by information

It’s no surprise that people talk of information overload, or how much it impacts productivity. It’s not new either. A 2012 study from McKinsey & Co highlighted that nearly a fifth of professionals’ time was spent searching for and gathering information, half of the time they spent undertaking role-specific tasks. This is only likely to have increased as we’ve become more dependent on digital tools and services.

On top of that is the realisation that, thanks to social media, we’re living in a time when anyone can be an influencer or thought leader if they shout loud enough. It doesn’t matter whether you’re pushing trainers or cloud computing, whether your audience is a broad spectrum of consumers or a niche group of B2B buyers; the tools and resources are pretty much freely available to build a profile and push your message out there.

David Holden-White

The result is that it’s becoming increasingly hard to find the value amongst vast and accelerating volumes of online data and noise, and to use that data to make accurate, effective decisions.

This is something we need to be able to do. We’re all expected to work faster, to make better decisions more quickly. The pandemic showed that certain changes don’t need five committees, two working groups and a proof of concept to take place before decisions can be rubber stamped. At the same time, no matter what industry you work in, there will be competitors who are more agile, more flexible, and seem to be much better at making decisions and capitalising on opportunities.

Yet those decisions still need to be backed by evidence, by irrefutable knowledge. What’s more, there’s only so much data can give us. We need the insights stored in the minds of true experts, with lived experiences of the particular problems, markets and technologies in question. In accessing this, we can develop a decision-making edge in businesses that competitors don’t have, that can be used to drive entrance into new markets, or for winning investment decisions.

 

Limiting risk in investment decisions

As we all know, investments are inherently risk-related, so, anyone making such a decision will do all they can to minimise their risk exposure, especially in volatile post-covid markets.

To do that requires being able to identify, consume and process information quickly. Investment opportunities, particularly in industries with significant growth capacity, come around quickly and get snapped up fast.

Those decisions will incorporate analysing and drawing insights from raw data, using publicly available and analyst-produced information. But there is also an opportunity to draw on human insights, from leading experts in relevant fields, to get a sense of the story that 0s and 1s can’t properly tell yet. Tapping into the right minds  is essential to informing investment decision-making in 2021.

In an ever-growing haystack of information, the challenge is finding them quickly. Plus, once they are found, there’s a tendency to keep using them, or to use them as a gateway to others in their network. While there’s nothing inherently wrong with this approach, it leaves investors exposed to a lack of diversity in thought that makes getting to an unbiased view of the world impossible. At the same time, casting their net wide and finding lots of experts is resource and time-intensive, at a point when time is one commodity in short supply.

So, what’s the solution? Ironically, given that the challenge is bringing the right human insight into the process, the answer could lie in technology, specifically artificial intelligence (AI). AI-powered platforms can take a request for expertise and run searches through all available published and credible material to recommend the most appropriate experts for the project in question.

It’s true that there are already services that recommend experts, but they are heavily manual and therefore slow and imprecise. It’s also true, there are also both negative and positive connotations being attached to AI. No technology is without its flaws, and if investors were relying on the AI platform itself to provide expertise then there would be cause for concern. Services that provide access to the experts themselves, however, are providing a fast way through the noise and data – it’s a car to the destination, not the destination itself. Once investors and experts are connected, the former has access to the relevant insight the latter holds in their heads. What AI has done is rapidly scan through millions of people of talent to highlight the relevant knowledge holders with pin-point accuracy.

 

Using technology to highlight the best human knowledge

Using an AI technology platform to find the most relevant human is a way of taking a resource-consuming process and finding what’s needed in a thousandth of the time. In that way, investors can get fast access to the human insight they need to make the best decisions,  allowing them to capitalise on opportunities and not miss the next big growth opportunity.

 

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FINANCE DERIVATIVE 2021 TRENDS – NUAPAY

By Brian Hanrahan, CCO, Sentenial, parent company of Nuapay

 

The past year has accelerated payments trends that already existed, as consumers looked for alternative ways to manage their money and purchase goods and services during the pandemic. In 2021, it’s easy to see how these trends have been cemented into the mainstream.

Digital payments grew significantly in 2020, as a direct result of the pandemic. Open Banking payments in particular increased significantly, with research from the UK Open Banking Implementation Entity (OBIE) showing that the ecosystem set to hit three million users shortly , despite disruption caused by COVID-19. This can be partially attributed to the growth in Alternative Payment Methods (APMs) enabled by Open Banking, particularly in mobile commerce but also in some physical scenarios using technology such as QR codes.

Quick Response (QR) codes enable consumers to make payments securely and efficiently from their mobile devices. Recent research concluded that customers across the UK and Europe are increasingly relying on QR codes, with 80% of smartphone users saying they had scanned a QR code at least once in their lifetime, and 40% added that they scanned one in the last seven days. Respondents named, among others, cafes and restaurants as places where they used a QR code as a payment method, demonstrating that this increased adoption goes beyond Covid related Track and Trace schemes.

Importantly, more than 50% of all respondents said they expected to use QR codes for payments in the near future, indicating that consumers will begin to expect QR codes to be available in face-to-face payment environments like brick and mortar stores.

Brian Hanrahan

Another range of APM use cases that will become more commonplace after a relatively slow start in the UK are wearable payment devices. The wearable tech market was valued at approximately $27 billion in 2019, and is expected to rise to $64 billion by 2024, partially due to a greater increase in consumer adoption in 2020 than had been predicted.

Innovative wearable technology, like K Wearables’ K-Ring, enables consumers to seamlessly make payments while eliminating the need to handle cash or touch a card terminal PIN pad. When enabled by Open Banking technology, rather than traditional card rails, merchants also benefit by receiving their funds significantly faster and much lower processing costs. As merchants become more familiar with the benefits of accepting payments via Open-Banking enabled wearables, I anticipate we’ll begin to see merchants incentivising their customers to use them.

Indeed, recent research found that 30% of consumers said that a trusted brand could encourage them to use Open Banking as an alternative to credit or debit cards, while more than one in six said a retailer could incentivise them to use Open Banking through loyalty schemes. Additionally, more than half of all UK consumers, and over 60% of mobile banking users would be willing to pay via Open Banking if provided with the opportunity.

Consumer subscriptions powered by recurring payments will also continue to grow throughout 2021. Subscription-based models have traditionally been difficult to implement for SMEs, due to the difficulties surrounding collecting recurring payments. As the Account-2-Account payments market has become more competitive, providers have raced to provide technologies that enable recurring payments seamlessly, primarily based on direct debits. In turn, this has meant that SMEs can provide an efficient and secure payment experience, and meet the ever-growing demand for subscriptions from their customers.

Even pre-pandemic, more than 60% of adults worldwide used at least one subscription service, and in Europe alone spent an average of €130 per month on subscriptions. With millions more consumers discovering the convenience and even excitement of a monthly coffee, pasta, and even toilet roll subscription in 2020, I foresee recurring payments staying the course through 2021 and beyond.

Overall, Covid-19 has advanced the migration of business to online and mobile, in order to maintain their service to customers who they can no longer attend to in person.

Competition has dramatically increased in the digital space, and delivering seamless customer journeys has become a necessity for businesses to survive. This is particularly true for retailers, who are already turning to alternative ways for their customers to pay.

 

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