The difference between a bedsit and HMO: What it means for landlords

As a landlord, it is vital to understand the different types of accommodations you can offer to your tenants. The two common terms that often crop up are “bedsit” and “House in Multiple Occupations” (HMO). For the purpose of this advice piece, we will look at the difference between a bedsit and HMO property and what this means for landlords.  

Either type of accommodation will have different implications, so let’s get into the details. 

What is a bedsit?

A bedsit, or bedsitting room, refers to a single room within a larger property that serves as both the living and sleeping area for the tenant. 

Bedsits, or bedsitting rooms, are a popular form of rental accommodation, especially in cities where space is at a premium and housing costs are high. The room serves as both the living and sleeping area, with kitchen facilities included within the room. Bathrooms are typically shared in bedsits. 

Bedsits are often found in converted houses and are popular among single people, students, professionals who travel a lot, or those on a tighter budget who value simplicity and affordability. 

Bedsits are also more expensive to insure than HMOs and it is a very specialist area with the majority of insurers not offering cover on bedsits, so if this is the type of property that you want to invest in, then make sure that you find an insurance company that offers that safety net.    

Landlord considerations for bedsits:

There are a few details that you would need to think about when deciding whether or not to invest in a property and renting it out as bedsits for tenants. 

• Regulations: Ensure you comply with local housing standards, including safety and hygiene standards for shared facilities. These may be different in each county so make sure that you are aware of your county’s regulations for bedsits. For example, in the Royal Borough of Kensington and Chelsea, if a room is occupied by one person, the room cannot be smaller than 11 square metres. If the room is to be let out to two people, it cannot be smaller than 12 square metres. 
• Rent collection: Rent is typically lower, so managing multiple bedsits can help maintain a steady income flow. 
• Tenant turnover: Be prepared for potentially higher tenant turnover, which can increase management tasks like advertising and tenant screening.

How does this affect you as a landlord?

So, naturally, there are pros and cons to this type of accommodation. Let’s take a look at how renting out bedsits could affect you as a landlord and your property portfolio. 

Pros of bedsits

Bedsits, also known as studio apartments or efficiency apartments, can be an attractive option for landlords for a variety of reasons, but they also come with some specific challenges. Here’s a breakdown of the pros and cons of owning and renting out bedsits. 

• Higher yield potential: Bedsits can offer a higher rental yield compared to larger properties. Because bedsits typically occupy less space, you can fit more of them into one property, potentially increasing your total rental income from a single building.
• Market demand: There is often strong demand for affordable, smaller living spaces, especially in urban areas with high population density. Bedsits are very popular among students, young professionals, and single occupants. This means that because there is a high demand, it can lead to lower vacancy rates.
• Lower maintenance costs: Due to their smaller size, bedsits generally incur lower maintenance and repair costs. There’s less space and fewer appliances to maintain, which can reduce the time and money spent on upkeep.
• Simplified furnishing: Furnishing a bedsit is typically less expensive because of the limited space. This can be an advantage if you offer furnished units, as the initial investment and the cost to replace or update furniture is reduced.

Cons of bedsits

Now, here are a few reasons you might not want to let your property out as bedsits. 

• Higher tenant turnover: Bedsits often attract tenants like students or young professionals who may not stay long-term. This can lead to higher tenant turnover rates, increasing the costs associated with finding new tenants and preparing the unit for rent more frequently.
• Limited tenant pool: While there is a market for such small spaces, the available choice of potential tenants is naturally smaller. Families and older individuals often look for larger living spaces, which can limit your market.
• Regulations: As mentioned before, in some regions, there may be stricter regulations governing bedsits, especially concerning minimum living space requirements and standards. It would be necessary to make sure that you become familiar with the different regulations in different councils.
• Risk of overcrowding: Due to their affordable nature and small size, there’s a risk that tenants might overcrowd the space, which can lead to increased wear and tear, higher utility usage, and potential breaches of lease terms or local housing codes.

Managing bedsits requires a balance of understanding the specific market demands and managing the inherent challenges of smaller living spaces. For landlords, deciding to invest in bedsits should involve a careful analysis of these factors in relation to their own property management capabilities and investment goals.

Offering bedsits can be a lucrative option due to the potential for higher-density renting in a given property, but it also comes with the responsibility of managing more tenants and maintaining common areas effectively. 

What is an HMO?

An HMO (House in Multiple Occupation) is a rental property where three or more tenants form more than one household, sharing amenities like bathrooms and kitchens. 

This kind of property is common in university towns and densely populated urban areas. While HMOs can be highly lucrative for landlords, they also require more management and compliance with specific regulations. 

Landlord considerations for HMOs:

Here’s what you need to know as an HMO Landlord. 

• Licensing: Check if your property needs to be licensed as an HMO before leasing it out. This will involve meeting specific safety standards before your tenants can safely move in.
• Higher earnings potential: HMOs will often command higher total rent compared to renting the same property as a single unit.
• Increased responsibilities: Managing an HMO comes with added responsibilities like ensuring communal areas are clean and functioning and managing relationships between tenants.

How does this affect you as a landlord?

Now, let’s take a more in-depth look at the pros and cons of renting out your property as an HMO. 

Pros of HMOs

• Higher rental yields: One of the biggest advantages of HMOs is the potential for higher rental income. By renting out individual rooms rather than a whole property, landlords can often generate significantly more income than they would from a single-family rental.
• Reduced financial risk: With multiple tenants, the risk of total loss of income is lower. If one tenant leaves or fails to pay, the other tenants’ rent can still cover the property’s costs, mitigating financial risk.
• High demand: In areas with high populations of students or young professionals, demand for affordable, shared living spaces is consistently strong, contributing to lower vacancy rates.
• Economies of scale: Managing maintenance, utility bills, and other property-related tasks can be more efficient in an HMO since you’re dealing with one property, not multiple properties spread across locations.
• Tax benefits: Depending on local laws, landlords might be able to claim larger expense deductions for an HMO, reflecting higher operating costs compared to other rental properties.

Cons of HMOs

• Complex regulations: HMOs are subject to specific regulatory requirements, including licensing, which can vary widely by location. These regulations may dictate minimum room sizes, safety standards, and amenity provisions, requiring significant initial and ongoing investment to comply.
• Higher operational costs: The turnover in HMOs can be quite high, and the wear and tear from multiple occupants can lead to increased maintenance costs. Additionally, landlords usually cover utility bills and common area upkeep, further adding to expenses.
• Management intensity: Managing an HMO is generally more labour-intensive than managing single-occupancy rentals. Issues such as noise complaints, conflicts between tenants, and frequent tenant turnover require ongoing attention.
• Market volatility: While there can be high demand for HMOs, the market can also be volatile, influenced by changes in local job markets, university enrollments, and economic downturns. 
• Investment risk: The property’s value can be highly dependent on its status as an HMO, which might be affected by changes in local housing policies or market trends. Also, converting an HMO back into a single-family home or another type of property can be costly if you decide to change your investment strategy.

Overall, while HMOs can offer substantial financial benefits and are a robust investment in the right market, they require careful management, a good understanding of legal responsibilities, and the ability to handle complex tenant relationships. For landlords willing to take on these challenges, an HMO can be a profitable venture, however. 

The difference between a bedsit and HMO

So, what are the key differences between bedsits and HMOs?

Regulatory requirements

HMOs typically face stricter regulatory requirements compared to bedsits, including mandatory licensing for larger HMOs. This can involve fire safety measures, minimum room sizes, and adequate cooking and bathroom facilities.

Financial implications 

Although HMOs may require a greater initial investment and higher maintenance costs due to the complexity of managing multiple tenants and shared spaces, they can also yield higher rental income. Bedsits, being simpler, require less upfront investment but might offer lower returns.

Tenant management

Managing tenant dynamics in an HMO can be more challenging due to the number of tenants and the shared nature of the space. Bedsits, while simpler, may see higher turnover, necessitating frequent reletting efforts.

So, now you have enough information to support you in making an informed decision about whether to lease out your property with bedsits or as an HMO. Which one will it be? 

Are you looking to get a buy-to-let insurance quote for your property? If so, make sure to get in touch with our friendly team of experts for more information on 01788 818 670.