In a recent video, I addressed the issue of utility prices increasing and the impact it has on houses in multiple occupation (HMOs). There has been a lot of nonsense posted on social media suggesting that these energy price increases will mean that the rent2HMO business is over. They say that because of these price increases, once you pay the bills you won’t have any profit left. This is the most moronic, ridiculously flawed argument I have ever heard!
The reality is that HMOs and rent2HMOs are still excellent investments and there isn’t a problem at all. In the video (above) I explain in detail exactly why this is the case. I highly recommend you watch the full video and send it to anyone claiming HMOs are dead. In this article, I will summarise 3 reasons HMOs are still an excellent investment in 2022.
1. When energy prices go up, so do room rates
Petrol stations don’t go out of business because of the increased price of oil; companies selling timber don’t close down because of increased timber costs; supermarkets don’t close down due to increased food prices. When the cost of anything goes up, that cost is passed to the end consumer. These companies are not necessarily losing out at all and, in some cases, their profits are going up.
This is also true for HMOs. When energy prices go up, they are passed to the end consumer in the form of rent increases. As all the landlords will experience the same price increase, rents go up across the board. Housing is an essential product, so demand will not significantly change. Therefore, there is little to no change in profitability for the landlord.
2. When the economy is down, HMOs become more popular
The economy isn’t doing well right now to say the least. Prices are going up, but wages are staying the same. People are looking to cut costs and make ends meet. One of the biggest costs people face is housing. One way to cut that cost is to rent a room in an HMO rather than rent a whole property. This means that the demand for HMOs is increasing.
This is great for anyone with an HMO or a rent2HMO, as there will be plenty of people to fill rooms and room rates will also continue to go up. Far from now being a bad time to have an HMO, now is an excellent time to have an HMO!
3. You can profit while helping solve a problem
People say to me, ‘But Samuel, isn’t this exploiting the housing crisis?’ The answer is no. This is helping people by providing the type of accommodation they need right now. Capitalism works because both sides of a trade are better off for the trade. The seller wants the money more than they want the goods they are selling, and the buyer wants the goods more than they want to keep the money.
When there is more demand in the market than there is supply, prices go up. This sends a signal to the market that more of that item is needed. Other people see an opportunity to profit from the increased demand and supply increases. The increase in supply, in turn, pushes prices down again. As a provider of affordable housing, you are playing your part in that process and helping to fix the housing crisis over time.
