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We are increasingly seeing more and more landlords and investors seeking higher rental yields. One popular strategy is taking a multi-unit freehold block of flats (MUFB) and operating each individual flat as a house in multiple occupation (HMO), to maximise the rental income that can be generated.
How do Hybrid HMOs and MUFBs work?
A house in multiple occupation (HMO), is rented out on a room-by-room basis which means they have higher income-generating potential. A HMO is defined as a property which has three or more people, that form more than one household living together who share a kitchen and/or bathroom.
Combining a HMO within a MUFB unlocks potential for landlords to massively increase the amount of rental income they can receive from the property.
Typically we see clients take a 2-bedroom flat and convert the lounge area into a 3rd bedroom. This means the client can have 3 separate tenants living in the flat, collecting 3 separate rental payments each month. This set up avoids the need for mandatory licensing.
Real Life Example
See below a real life example of how this strategy has helped one of our clients achieve higher rents.
A typical 2-bed flat would rent for £1,000 pcm (excluding bills).
Our client has converted the 2-bed flats into 3 rooms rented on a room by room basis. They now receive £1,500 pcm per flat (excluding bills).
Our client now achieves 50% more rental income each month per flat.
This particular block of flats comprises of 9 units, which is now a total of 27 rooms. Over the 9 units, our client now receives £4,500 more each month, than what they would do if each flat was rented on a single AST. That is an additional £54,000 rental income each year!
The property has gone from yielding 9.2% to 13.8%!
This property is located in a City Centre where our client believes there is more demand for a single room rather than a flat.
How can I finance this type of property?
We have access to lenders who are able to lend on these types of properties. One particular lender can also lend against the ‘aggregate value’ on a refinance application which is the value of each individual unit as if it was on it’s own leasehold title, but without the need to legally split the title. This can be useful if you are looking to maximise leverage.
Market Data has revealed that there is a 14% increase in landlords looking to invest in Multi-Unit Blocks of Flats in 2024 compared to 2023. This is reflective of professional landlords looking to grow their portfolios as MUFBs generate both diversified income streams, higher rental yields and also tend to have a lower risk for rental void periods.
How can Advocate Finance help?
We are experts in MUFBs and HMOs, having completed on multiple cases over the years for our clients. Please get in touch if you are interested in finding out more information.
As always, we assess each case on it’s own merits tailoring a solution to your individual needs.
We provide a FREE assessment on all our services.
Please contact me directly for more information, or use the Get in Touch With Us Today feature at the bottom of this page.
