Why Build an HMO Over a Traditional Investment Property

Are you wondering why you should invest in a HMO instead of a 4 bedroom 2 bathroom house and land package to claim negative gearing benefits? Lets explore the reasons.

We build the wrong product for the marketplace.

Currently, 70-80% of new builds in Australia are 3, 4 or 5-bedroom homes, and the average size of a newly built house is 235.8 square metres. When we look at the rental market, it is estimated that 65-75% of renters are singles or couples. This means we have been building houses too big for the marketplace. This creates unaffordability (because they cost more to build) and is also a significant factor towards loneliness and social isolation as people live alone in oversized houses.

Creating Affordable Living Spaces

In the face of escalating real estate prices, the quest for affordable housing solutions is more pressing than ever. This is precisely where Houses for Multiple Occupancy (HMOs) shine. These shared living arrangements reinvent the concept of accommodation, making it both accessible and communal. The House of Multiple Occupancy (HMOs) aligns perfectly with the principles of impact investing. Impact investing refers to investments made with the intention of generating a positive, measurable social and environmental impact alongside a financial return. In this sense, HMOs go beyond mere profitability to foster sustainable living and community spirit.

Diversified Revenue from a Single Asset

One of the cornerstones of any robust investment strategy is income diversification. Traditional rental properties often hinge on a single source of income, whereas HMOs break this mould by introducing multiple revenue streams under one roof. This multi-tenancy approach mitigates the financial risks associated with vacancies, ensuring a more steady and reliable income flow for property owners.

Income is the outcome investors desire

In property investment, “income is the outcome” holds paramount importance, and nowhere is this more evident than in the concept of the Houses for Multiple Occupancy (HMOs). For property investors, the ultimate goal is to generate a steady income stream, underscoring the adage that “cash flow is king.” This is particularly relevant in today’s dynamic real estate market, where traditional investment models are being reevaluated in the face of inflation, interest rate hikes, shifting demographics and housing needs.

The Advantage of Depreciation

An often overlooked yet significant benefit of investing in HMOs is the potential for depreciation claims. These tax deductions, based on the depreciation of property and assets over time, can significantly reduce taxable income, thereby boosting the overall profitability of the investment. The enhanced depreciation potential in HMO investments offers a compelling reason for investors to consider this route over traditional property investments.

In summary, opting for an HMO over a traditional investment property has numerous advantages: it solves the affordable housing crisis, diversifies income sources, ensures a steady revenue stream, and presents considerable tax benefits. It’s an innovative approach that not only meets investors’ financial objectives but also aligns with the community’s broader needs for sustainable and communal living spaces.