When deciding where and how to invest in the real estate market, there are several avenues a potential investor can take. It helps to know which has the most market value and potential return. There are two significant sectors of multiple housing developments in the housing market which potential investors will need to choose between, HMO and PBSA.
What is an HMO and What is a PBSA?
In order to make the safest or most ideal investment, an investor will need to know the difference between the two. HMO, which stands for a property that has been rented out to more than three different residents’ who are not part of the same household. These occupants are not family but do share bathrooms or the kitchen. This is also sometimes called a housing share. For this type of property, an investor will also need a license in order to keep the property correctly and legally functioning in England and Wales.
A PBSA, or Purpose Built Student Accommodation, is used as a student housing scheme and is often comprised of an entire building which includes multiple flats used to house university students. PBSAs were often owned and invested in by large property developers and financial institutions until buy-to-let managers, property speculators, and private individuals saw the draw of keeping their money safe within a steady investment framework and gaining steady income off their investment. They also saw the draw of buying several individual flats rather than selling entire buildings to wealthy developers for just one return. This tactic has become the leading “alternative asset class” in the UK.
HMOs and PBSAs both come with difficulties that transcend investing in individual private property, though they may bring a more steady return and continued profit flow over time. Once an investor has decided to invest in HMO or PBSA, they must choose which is a better scheme in which to invest their capital based on what kind of return they are wanting and how they want their investment to thrive in the future.
Which to Invest?
Depending on an investor’s style and long-term plan for their investment, they’ll need to analyse the pros and cons of the HMO versus the PBSA in order to plan in the long term. Both are viable options with their own sets of positive and negative aspects.
Pros and Cons to PBSA
For the most lucrative option, PBSAs are growing ever more popular in the UK market with the possibility of a steady return and a relatively easy form of income. They’ve also become increasingly accessible to private individuals, drawing more diverse groups of investors in.
Most of these investors have either experienced leasing to private individuals previously or have hired a financial advisor to help them navigate the investment and potential return from a PBSA. If an investor who has never dealt with either decides to invest in a PBSA, they’ll have to plan for a significantly more lucrative, but also complex investment. Managing perhaps hundreds of individuals will also take quite a bit of skill, in addition to contract and license management.
PBSA has proven to have more of a monetary payoff than that of an HMO based on quantity, the return, and ease of individual investment, and can be a great source of income for the investor. Also, according to Real Estate Worldwide, “the demand for PBSA has never been higher.” With so much demand and little supply, investors stand to profit more than they lose.
Pros and Cons to HMO
HMOs have a large stipulation for investors, which is the requirement of a license. Because HMOs are also a usual tactic in housing University students, they are similar to PBSAs in the need for regulation and the somewhat difficult aspect of managing, but actually require more headaches than a PBSA. Regulations on HMOs are only growing more troublesome.
Investors are heading toward more sustainable ways of housing students and building in general, which means already in use HMOs may need to rebuild to meet current regulations. Most investors project that the added regulations for the HMO market will lead to even steadier growth in the PBSA market, which stands to gain quite a bit of profit from an HMO downturn or drop in the market.
Invest Intelligently
Whether it’s a PBSA or HMO, investors still have the opportunity to gain a secure income. PBSA does have the larger draw to current and future investors in terms of the facts listed above. When deciding your next possible investment venture, it’s essential to research all possibilities before making the executive decision.
