As a landlord, it’s fair to say your aim is to make as much profit from your investment property as possible. However, with rising interest rates, regulation updates and changes to tax laws, this is becoming much harder than in years gone by. That’s why more landlords are thinking about Houses of Multiple Occupation (HMOs) to up their rental yield.
At Brookings, we work with landlords all over East London and Essex to help maximise their profits. And if you’re thinking about how to increase the value of your rental, then an HMO may be the next step.
In this quick guide, we’ve pulled together helpful information about the ins and outs of starting an HMO.
What is an HMO?
Legally, an HMO is a property where three or more tenants live forming separate households. Each tenant will have their own tenancy agreement. They will share a bathroom or kitchen facilities with other tenants. This is different from a shared house where multiple tenants will be named on a single tenancy agreement.
A property is a large HMO if there are at least five tenants residing in the property.
In the past, HMOs have been synonymous with poor housing standards and overcrowding, however these days, tenants demand a higher quality of living and HMOs must comply with strict safety and space standards.
What are the Requirements of an HMO?
If you plan to run an HMO for five or more tenants, you will need to apply to the Local Authority for a license. The property must be suitable in terms of size and facilities, you must provide gas safety certificates to the council annually, satisfy health and safety requirements and have proper fire protection procedures and equipment in place.
What Type of Property Can be Converted into an HMO?
While there are no specific rules about the type of property that can be converted into an HMO, there is government guidance around the amount of space a person must have when renting. For a single person a legal bedroom size is 6.53m2 and for a couple this increases to 10.22m2. However, every Local Authority is different, so you will need to check with them to ensure you’re following the correct rules.
It’s also worth knowing the planning rules of the area in which you plan to run an HMO. While some councils don’t have specific planning rules concerning this type of rental, others operate an Article 4 direction. This means that if you plan to build/renovate an HMO, you will require planning permission. Always check with the Local Planning Authority to see where you stand, preferably before investing in a building.
Is the Area Right for an HMO?
Landlords might feel that changing a building from a single-use dwelling (where tenants live as one household) to an HMO will automatically make them more money. However, this is not always the case. It’s important to understand your local area and the types of tenants looking for a property.
To explain further, if your property is based in a suburban area, popular with families and close to a school, it may not work as an HMO as families will look for larger rental properties, not single rooms. Similarly, if an HMO is in a rural area, with little or no public transport, you may find yourself struggling to fill vacant rooms. HMOs are typically best suited to urban areas, or those close to employee hubs such as business parks or office blocks.
What Kind of Tenants Will an HMO Attract?
A good-quality HMO is popular with young professionals and/or students. This grouping of tenants requires the following:· Easy access to public transport links
·Short distance from amenities such as a high-street
· High speed internet
· Modern conveniences
· Basic furnishings (such as a bed, wardrobe, and desk)
· Bills and council tax included
· Private en suites
· Modern interiors
· Flexible tenancy options
· Outside space for entertainment
· Communal areas
Managing an HMO
If you plan to manage an HMO yourself, it may not be as straightforward as a regular rental property. In the first instance, you’ll need to provide each tenant with a tenancy agreement, you may also be called to deal with tenancy disputes, you’ll need to organise rent collection for each individual tenant and so on. In addition, you will need to contend with the physical running of the property, such as repairs and maintenance, communal cleaning, organising waste collection and so on.
While an HMO is a great way to increase your rental yield, it also comes with a lot of challenges. Our experienced lettings team at Brookings, can help you work out whether an HMO will work in a particular area or property you are considering. We can also help find you reliable tenants and carry out reference checks. Our property managers are also highly experienced professionals and will advise you on how to maximise your income from letting property as a HMO.
Give us a call on 020 8591 9088 for a quick chat.
