Standard buy-to-let properties may lose money if interest rates rise, while houses in multiple occupation will remain profitable, according to analysis from Platinum Property Partners.
The franchise network suggested that HMO properties are the most stable and profitable form of buy-to-let investment, protecting landlords against higher costs caused by the looming interest rate rise.
Their data shows the average monthly rent in the buy-to-let market last year was £754.
In comparison, average monthly rental for a HMO property, which is dependant on the size of the property, was £3,298.
It argues that these findings dispel the notion that the success of any buy-to-let investment is mostly about increasing house prices and capital gains.
The government announced plans in the summer Budget to restrict mortgage interest relief for buy-to-let landlords.
Almost 21,500 have signed a petition against the move, arguing that the proposed tax relief restriction prevents landlords from offsetting costs in the same manner as other sole traders.
A report from ratings agency Moody’s recently suggested that restricting mortgage interest relief for buy-to-let landlords will curb short-term lending in the sector and will slow house price growth.
Steve Bolton, founder and chairman of Platinum Property Partners, said: “In recent years, there has been an influx of investors to the BTL market, with bricks and mortar proving to generate returns that outperform all other asset classes.
“However, not all BTL is equal, and our data shows that HMO’s generate much higher rental income than standard BTL properties.”
He added: “With many changes on the horizon for landlords, including the proposed restrictions to mortgage tax relief and looming interest rate rises, it’s never been more crucial to have a decent cushion of rental income to absorb any rising costs.”