If you’re looking to buy property in a student-heavy area, or are considering investing in a large property that could house many tenants, you might be wondering if HMO properties are really worth considering, or should you stick to single occupation investments?
HMOs can be a fantastic investment as they have the potential to provide higher rental returns compared to traditional buy-to-let properties, providing the occupancy rates are maintained at the maximum level.
Of course, to house more people you’ll need a bigger property. Although you could also turn a smaller house into a mini HMO.
What is an HMO property?
An HMO property is a house or flat that is rented out by at least three people who are not from the same household.
According to the government guidelines your home is a house in multiple occupation (HMO) if both of the following apply:
- at least 3 tenants live there, forming more than 1 household
- you share toilet, bathroom or kitchen facilities with other tenants
This is an attractive proposition for landlords as it allows them to collect multiple rental incomes from a single property. Make sure to read our article on why investing in HMOs is a profitable venture.
What are the buy-to-let mortgage terms for HMOs?
If you’re thinking of letting your property as an HMO (house in multiple occupation), it’s important to check your mortgage terms first. Some buy-to-let mortgage agreements don’t allow properties to be let as HMOs, so you could be in breach of your contract if you go ahead without checking first.
It’s a good idea to speak to a buy-to-let mortgage broker before making any decisions, to make sure that you’re fully informed and compliant with your agreement. If you don’t currently have a broker then you could contact the mortgage broker on our expert panel.
What is the tenant turnover for HMOs?
The tenant turnover for HMOs will depend on which area you are investing in. It will also depend on your target market for your HMO ie, is it a student let or a professional let.
But on average turnover happens more often with multi-let tenants, perhaps twice as often as single let tenants. Why is that?
A HMO tenant will often have shorter term goals, and want to put away money every month to save up for a deposit so they can buy a home in the near future.
Or they might have a short term work contract, and know they may have to move to another location within a few months. Or they simply cannot afford a single let family home, so they choose and HMO as it’s often a cost-effective ‘all in one solution’ & affordability is not so difficult.
Unfortunately, though, as soon as they have enough money saved, or a higher paying job, they will probably move out to a new flat or a house, leaving you to find new tenants.
They are also more likely to cause hassle and have conflicts and disagreements with other tenants, making them more susceptible to being evicted the most.
How can landlords keep their property safe from damage?
More frequent checks will be needed for an HMO than a single let property. This is because there will be multiple people living in the property, so you don’t know who will be responsible for what ie. who will keep the shared areas clean – kitchen, bathroom etc.
Generally single households will have their own rules within the family for cleaning and there will be high levels of interaction between occupants.
There are legal regulations that you have to follow as a landlord if you own an HMO.
Every HMO must have a gas safety certificate (CP12), an electrical certificate, up-to-date smoke and carbon monoxide alarms, and be free of mould. You must also:
- Keep a fire safety plan in place.
- Make sure you have proper fire extinguishers and equipment.
- Stay up to date with the fire code and be aware of changes.
How can landlords keep damp at bay in their property?
Damp can be a big problem in rental properties, especially if it’s not dealt with quickly. Not only is it unsightly, but damp can also lead to other problems like mould growth and structural damage. Dampness caused by excessive condensation can lead to mould growth on walls and furniture, mildew on clothes and other fabrics and the rotting of wooden window frames.
So, what can landlords do to damp-proof their rental properties? Here are some tips:
- Make sure that your property is well-ventilated. This will help to prevent damp from developing in the first place.
- If you have any areas of your property that are particularly susceptible to damp (such as basements or cellars), make sure that they are properly waterproofed. This could involve installing a waterproof membrane or tanking the walls.
- Use dehumidifiers in any areas of your property that are particularly prone to dampness – this will help to reduce the moisture in the air and so prevent damp from developing.
- If you do find that damp has developed in your property, deal with it immediately by drying out the affected area and then repairing any damaged plasterwork or wall coverings.
What do landlords need to consider when creating a HMO?
The following are key considerations for your property investment:
Health and safety: Landlords should keep on top of health and safety issues in order to comply with local authority regulations. This includes having a plan in place for any emergencies that might arise, as well as keeping records of all incidents.
Insurance: It is important for landlords to have adequate insurance cover in place in case of any damage or accidents at the property.
Staff training: Landlords should make sure that all staff members are properly trained in how to deal with HMO tenants and their needs.
Procedures for incidents: Landlords should have clear procedures in place for dealing with any incidents that occur at the property, such as noise complaints or disruptive behaviour.
What is the fitness for human habitation in an HMO?
The legislation means all rented accommodation must be suitable for human habitation at the start of the tenancy and throughout. If the property contains any of the 29 hazards outlined in the HHSRS regulations, it’s likely to be deemed unfit for human habitation by the courts. As a landlord, you’ll be exempt from ‘acts of God’ and any issues caused by tenants.
The key question when determining unfitness for human habitation is whether a property is ‘not reasonably suitable for occupation in that condition’ because of one or more of the following factors:
- freedom from damp
- internal arrangement
- natural lighting
- water supply
- drainage and sanitary conditions
- facilities for preparation and cooking of food and for the disposal of waste water
- any ‘prescribed hazard’ – this is defined as any matter or circumstance amounting to a category 1 or 2 hazard under the Housing Health and Safety Rating System (HHSRS).
What are some further readings on HMOs?
If you’d like to learn more about this topic I’d suggest checking out the following:
- Complete HMO Property Success
- 101 Essential Tips for Running a Professional HMO
- Planning for HMOs: A Practical Guide to Planning Permission for Houses in Multiple Occupation
- What should you steer clear of in HMO property investment?
- Legal factors involved in HMO investment
Is it good to buy an HMO property?
There are both pros and cons to buying an HMO property. On the one hand, HMOs may generate higher income for landlords.
However, they also come with significantly higher initial costs. Before making a decision, it is important to weigh up both the potential benefits and drawbacks of investing in a HMO property.
With a single let property you’re doing well if you clear £200 profit each month, with HMOs you should be looking at a minimum of £500pcm. With a more high end HMO you could be looking at £1000 pcm.
If you look at your target income goal for your property portfolio you may have to buy 5 single lets to achieve the same income that 1 HMO could bring you.
Can I live in my HMO property?
There are three types of HMO property:
- A house that is converted into self-contained flats, where each tenant has their own tenancy agreement.
- A house that is converted into bedsits, where each tenant has their own room and shares kitchen and bathroom facilities with other tenants.
- A purpose-built block of flats or maisonettes, where each tenant has their own tenancy agreement and there are communal areas such as a laundry room or gym.
What is an HMO and does it need a licence?
A local authority may require an HMO to be licensed if it meets specific criteria, such as the number of occupants or the type of property. Houses in Multiple Occupation (HMO) are needed to provide an affordable form of housing, particularly for young people, those on lower incomes and students. Sometimes areas have extreme concentrations of HMOs which can have a negative effect on communities.
Sometimes councils put an Article 4 direction in place to prevent communities from becoming imbalanced. This means that there is no permitted development of properties into HMOs without planning permission.
What are the benefits of an HMO?
The biggest advantage of HMO’s is that they are cash cows. Big returns are standard. As mentioned previously, you can often make 5 times the cash-flow than single lets.
It also helps in regard to having voids. If the tenant of your single-let property moves out, then you have nobody to pay the rent. Therefore, you have to cover the mortgage yourself.
However, if one tenant out of your 5-room HMO moves out, it doesn’t matter because you have 4 other people still paying rent. So there’s less of a risk factor.
What are the risks of an HMO?
One of the biggest risks with an HMO is that you could end up with problem tenants who don’t pay their rent or damage the property. It’s important to screen tenants carefully and have a good management plan in place to deal with any issues that may arise.
Because they are considered higher risk, HMO mortgages tend to have higher interest rates than standard buy-to-let mortgages. However, with the right property and tenants, an HMO can be a very profitable investment.
Its so important that HMO tenants can get along with each other. When you are selecting tenants, be extra careful and ensure you get the right tenants for your house.
Remember, they share communal areas, such as the kitchen and bathroom. It’s vital that they all get along. One bad tenant can cause great upset with the other tenats. One bad tenant can also consume all of your time and energy.
What standards need to be maintained in HMOs?
Any property that manages an HMO must comply with the Management of Houses in Multiple Occupation Regulations 2006. These regulations require proper standards of repair, cleanliness, and maintenance throughout the property. This is necessary to ensure the health and safety of the tenants.
Fire Safety Standards
All HMOs are required to meet minimum fire safety standards. Landlords should make sure that there are appropriate means of escape and fire detection systems according to the type of property and the way it is used.
For example, a house containing individual bedsits, each with cooking facilities, will require a higher level of protection than a shared house with a single kitchen.
The structure of the premises must be sound, as a minimum, and in higher risk HMOs, additional work will be required.
The council will also expect fire detection systems to be present. They should comply with standards set in BS 5839-6: 2019 Part 6: Fire detection and fire alarm systems for buildings: Code of practice for the design, installation, commissioning and maintenance of fire detection and fire alarm systems in domestic premises.
The person having control of an HMO is required to have fire precautions in place, to make sure the property is safe and to carry out fire risk assessments, under The Regulatory Reform (Fire Safety) Order 2005.
The assessment must be carried out by a competent person.
What are the pros and cons of hmos?
Investing in HMO properties in the UK can be a lucrative venture, but it also comes with its fair share of risks. One of the common pitfalls in uk hmo investment is the potential for increased maintenance and management costs. Managing multiple tenants and maintaining compliance with regulations can lead to unexpected expenses. Additionally, volatile rental yields and potential void periods are other common pitfalls to consider before delving into this type of investment.
- Landlords will receive higher profits from an HMO
- There is less risk with regards to voids
- The property can receive a commercial valuation when the landlord wishes to sell the property, so the value will be higher than just a bricks and mortar valuation
- There are more regulations to comply with
- If you have a HMO with 5+ tenants in it requires more of your time to manage the tenants and any issues
- The property will be large so there could be more maintenance
- Higher initial costs
Is it good to buy an HMO property?
As we’ve discussed, there are both pros and cons to consider when thinking about buying an HMO property. On the plus side, they have the potential to generate higher rental incomes. However, they also come with higher initial costs, such as licensing, safety checks and certificates. So it’s important to weigh up all the factors before making a decision.
Do you need permission to turn a house into a HMO?
An HMO property is a house or flat that is occupied by three or more people who are not members of the same household. The occupants must share facilities such as a kitchen or bathroom.
If you want to turn a property into an HMO, you will need to apply for planning permission from the local authority. This is because HMOs are considered to be high-density housing, which can have an impact on the surrounding area.
There are different types of HMOs, depending on the number of occupants:
Small HMO: Up to six occupants
Large HMO: Seven or more occupants
Article 4 Direction: An HMO that requires planning permission regardless of its size due to an Article 4 direction from the local authority.
Is an HMO property a good investment?
An HMO property is a House in Multiple Occupation. It is a type of investment property that can be very profitable for landlords, but there are also some potential drawbacks that should be considered before investing in an HMO.
The main benefit of investing in an HMO is the increased rental income that can be generated from renting out individual rooms, as opposed to an entire property. This is because you can typically charge more rent per room in an HMO than you could for an equivalent sized property rented out as a whole.
Another benefit of investing in an HMO is that they can be easier to fill with tenants than traditional properties, as there is often high demand for rooms in well-located and well-managed HMOs.
However, there are also some potential drawbacks to investing in an HMO which landlords need to be aware of. One of the biggest potential problems is the increased risk of damage to the property, as there are usually more people living in close proximity to each other in an HMO than in a traditional rental property.
Another potential issue with HMOs is the increased level of wear and tear on the property, as there are usually more people using shared facilities such as kitchens and bathrooms.
Finally, HMOs can also be more difficult to manage than traditional properties, as there are often more people to deal with and more potential for conflict between tenants.
Overall, there are both benefits and drawbacks to investing in an HMO property. Landlords need to weigh up the pros and cons carefully before deciding whether or not an HMO is the right investment for them.
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