Multi Let or Single Let- What is the best investment?

Multi Let or Single Let- What is the best investment?

Should I Invest in Single Let or Multi-let Property?

When considering your property investment options, it can be difficult to choose how you wish to proceed. Are you better to take on an apartment or house? Should you look to offer a single let, or consider a HMO, letting rooms separately to several tenants at once?

While there is no hard and fast answer, as always, it depends on your goals and preferences, reading this blog could help you to ascertain how you wish to let out your investment property.

What is the Difference between a single and mutli-let property?

  • A single let is a single dwelling let with a single Assured Short Term Tenancy Agreement (AST)
  • A Multi let is a single dwelling with multiple occupants on individual ASTs often called an HMO or House of Multiple Occupancy.

Let’s look at the properties of each and how they can complement your investment portfolio.

Single Lets

Single lets are the easiest properties to manage.  There are typically flats or houses.  There are 2 main types of tenant demographics for single lets:

LHA Tenants: LHA tenants are those who are funding all or part of the rent using housing benefit. Refurbishment standard on this type let tends to be of a more basic standard, and this type of tenant will often result in a long-term tenancy.  Good referencing is the secret to making this strategy successful.  Often these tenants are price sensitive and have very little assets to cover contingencies.  Getting rent payment on time can be challenging and if you can get a guarantor this can be helpful in providing some peace of mind.  Older Tenants over the age of 55 tend to be more stable and have fewer needs.  Properties within walking distance to shops and local transport rent best.

Professional – The term “professional” simply means in the housing market you have working tenants who are fully funding their rent.  These are the best type of tenants in my opinion if they have career stability.  They expect a higher refurbishment standard and are normally looking for good transport links and parking.

Corporate lets – While these are becoming rarer, as large companies adopt the both the Air BnB type model, or purchase investment properties themselves, a corporate let can be a great way to assure your rental income. Refurbishment standards are extremely high and their does tend to be a need to provide literally everything, as tenants are often coming from overseas or relocating for a period for a job role.

Investment returns

Single lets provide low monthly returns but can provide good capital growth.  Properties commutable to City centres and near transport links typically provide the best long-term returns.  Single lets can help in growing your portfolio as you can refinance them to take out chunks of money to use on refurbishments but they will not replace an income without a considerable portfolio.

MultiLets and HMOs

HMOs incur significantly higher management overheads than single lets.  Tenants tend to be more transient in nature and have different needs.  There are many different subcategories of HMO:

LHA – Typically tenants on housing benefit who take this type of accommodation are usually below 35.  Tenants can be transient and paying rent is not always their highest priority. Refurbishment level can be of a basic standard.  Management of these tenants can be quite challenging. I would not recommend this type of HMO unless you are an experienced investor.

Professional – Again these are working tenants who expect a higher refurbishment standard than LHA tenants but good referencing is the secret to getting good returns here.  Typically only 10% of your tenants will be car owners so location is important.   Near commuter transport links is the best location for these properties.

Student HMOs – Student HMOs are typically refurbished to professional HMO grade but the location is the most important aspect.  Tenants will not want to be far from campus and walking distance is preferred.  Student HMO rent is usually predictable, however, due to term duration, students often only want to rent for 10 months of the year.  It is quite normal for Landlords to offer a discount on rooms rented over the summer break period.  Students are looking for a communal social space in which to socialise and property maintenance can be higher than other HMO types.  Often a parental guarantee can provide some reassurance and deterrent for malicious damage.

Boutique HMOs – These properties are often within 10 mins walk to city centres and have a very high standard of refurbishment.  These HMOs attract young professional types and it is about providing a lifestyle and communal living experience.

Investment Returns

HMOs are predominantly a cash flow strategy.  The refurbishment costs are far higher than single lets, the regulation is higher and you need to know what you are doing in terms of management.  However, if I can use an example property in my portfolio as a single let I would get £600 a month but converted into an HMO I would get £2000 per month.  Obviously, there are utilities and other costs to be factored in but net profit is over double the standard monthly rent

Summary

Starting off in single lets is a lower risk approach and gives you time to obtain experience. The typical two up two down properties offer long-term capital growth but very little monthly cash flow.

Often lenders will want you to be a professional landlord before they will lend to you on HMOs.  HMOs are the fastest way of replacing your income but capital growth is weaker as the refurbishment costs are high so it takes time to recoup that.  My personal investment strategy is a mixture.  Single lets to create some capital growth that you can refinance to create pots of cash to pay for deposits and refurbishments and HMOs for monthly cash flow.

Whatever your strategy is learning from other people can help you avoid expensive mistakes.  I have personally invested thousands of hours in training and over £25k but made that back many times over.

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