You’ll often hear sports coaches talking about something called the ‘aggregation of marginal gains’.  

It may sound like a complicated economic term, but, simply put, it’s about trying to find that elusive 1% improvement in performance that can make all the difference between winning and losing.  

The idea was the brainchild of Sir Dave Brailsford, the former performance director of British Cycling, who reasoned that if you could gain any sort of advantage over your competitors, however small or insignificant it seemed, why wouldn’t you take it? The result was an unprecedented period of success at the 2008 and 2012 Olympic Games, and in the Tour de France. 

The same concept could be applied to landlords. If you’re investing tens of thousands of pounds in a property, why wouldn’t you choose one that offers you the best chance to earn the largest rental yields? 

It may explain why increasing numbers of landlords have been choosing to invest in Houses in Multiple Occupation (HMOs) in recent years. It’s not just experienced landlords with years of rental know-how behind them either; HMOs are also attracting the attention of those looking to take their first steps in the buy to let market. 

Savvy investors have recognised that HMOs offer the potential to earn higher yields compared to more traditional single let properties as there are multiple incomes rather than just the one.  

According to the latest research from BVA BDRC, the average rental yield for an HMO property currently stands at 7.5%. When it comes to the difference between an HMO rental yield and the overall average rental yield, we’re not just talking about 1% – we’re looking at a difference of 1.5%. 

And it appears as though the gap’s widening, with BVA BDRC’s research showing that between Q1 of 2020 and Q1 of 2021 the difference has grown by 0.6%. 

As well as a superior return, HMOs also give landlords the peace of mind of knowing that, due to separate tenancy agreements, voids are spread and only affect a proportion of the income, thus reducing the risk of payment shortfalls and falling behind with mortgage payments. 

As with any major financial investment, however, there are always other things that should be carefully considered. Buying and managing an HMO can be more challenging than looking after a single let property, and investors should always go into an arrangement with their eyes wide open. 

For example, HMOs with five or more unrelated people forming more than one household and sharing toilet, bathroom or kitchen facilities are subject to mandatory licensing with all local authorities, while some councils insist that properties with fewer occupants require a licence. 

Then there are the running costs associated with managing an HMO. Start-up costs can mount up if conversion work needs to be carried out or furniture needs to be purchased, while costs for things such as letting agents, utilities and maintenance can soon eat away into those much vaunted potential higher rental yields. 

There’s also the challenge of finding a lender who can offer landlords the mortgage they need. Their complex nature mean that some lenders are more cautious when dealing with HMO applications. 

Fortunately, specialist lenders have got the ability and experience to consider cases that other lenders may not be able to. With their flexible approach to underwriting and ability to look at each application individually and make a judgement based on its unique merits, they’re perfectly placed to support your HMO customers. 

We accept applications from experienced landlords for HMOs and multi-unit properties of up to 10 bedrooms/units, and for up to six bedrooms for first-time landlords. We welcome cases from limited company landlords, and we’ll consider customers with less-than-perfect credit profiles. 

If your customer wants to boost their rental yields, it’s worth remembering that HMOs could offer them that extra 1% (or 1.5% to be more precise!) in performance. And by making sure they’ve got the right lender by their side, you’ll be giving them the best chance to achieve the yield they’re looking for. 

Adrian Moloney is group sales director at Kent Reliance for Intermediaries