Now that property investment is firmly on-trend, HMO management is becoming a more common occupation; it’s estimated that currently over 4.5 million Brits live in a HMO! Hence why for landlords they’re highly profitable.
Look at where HMOs are situated in the UK and you’ll soon realise they’re more than likely in a place where rental yields are high (useful tip). In plain English that’s somewhere where the purchase price is low in comparison to the average rent. Reason being that unlike a residential let, HMOs can be let out to more than one person. However, that’s not to say you should just invest everything you’ve got into a HMO – there’s other factors to consider too, like the cost of a HMO license and the workings of HMO management
So with this in mind, here’s a whistle-stop tour of the management that goes into owning a HMO property…
After something specific about a HMO? Use the menu below to find the information you need quickly…
- What is HMO property?
- What does HMO stand for?
- What is a HMO license?
- HMO regulations: what are they?
- How should I rent a HMO property?
- Are HMO rentals profitable?
- Professional HMO management – is it worth it?
A HMO is a property which is rented out to 3 or more people from at least two households. Living a HMO means you’ll share a bathroom and kitchen, but have your own separate room. Some examples of HMOs are: student accommodation, bedsits, hostels, some B&Bs, residential care homes and houses that are let to lodgers.
HMO is an acronym which means House of Multiple Occupation, however sometimes a HMO is also known as a house share.
A HMO license is a legal requirement of any landlord renting one here in the UK. Licenses are sought through your local council and usually cost around £500 – £600, but ultimately the cost can differ quite substantially. In fact HMO licenses are often described as a ‘postcode lottery’. Licenses in London can often exceed £1000. You usually require a license when…
- There are 5 or more people living in the property
- More than one household is living there
NOTE: HMO’s let to 5 or more people are considered to a ‘large HMO’. Opt for a smaller HMO and you may not have to foot this fee. All HMOs that apply will be subject to a HMO inspection by a representative of the local council. If your HMO rental is not deemed to be up to the required standard, you can be ordered to make changes before anyone moves in.
Something you should know before investing in a HMO rental, is the amount of regulations your property must adhere to before it can be rented out.
Here’s just a handful of HMO regulations for you to be aware of:
- Every ‘unit of living’ must feature a form of heating, be that a radiator as part of the central heating system or a wall-mounted electric heater. Rent your HMO as one house and this will be required in each bedroom. Rent it as self-contained rooms you’ll be required to have a form of heating in each, despite their size.
- Washing facilities in a HMO rental should supply both hot and cold water and be fit for purpose. There are also other regulations around the size of the bathrooms, the proportion of bathrooms to people in the property and the adequacy and layout of the kitchen
- Bedrooms in a HMO property must be at least 6.51 square meters.
- Kitchens should feature full freezers (not just a drawer), electrical sockets, cupboards, worktops, slash backs, a sink, fire blankets, fire doors… the list goes on and on.
- Your tenants must be given details of the property manager. This would either be you if you opt to go self-managed or the management company you employ.
NOTE: HMO regulations aren’t there to trip you up. In fact most are common sense. The reason they’re there is to ensure the tenant isn’t being mis sold and at the very least has adequate living standards.
Renting a HMO isn’t as straight forward as you’d think. Before even buying the property and doing the necessary renovations, you first need to consider who you’ll be renting it to. By that we mean, are they young professionals? AirBNBers? Students?
You see, if they’re young professionals or AirBNBers, they’ll likely just want one or two rooms. Either way it’s unlikely it’ll be the whole house. Whereas if your target demographic is students, then they’re most likely to want most of, if not all the house, as they tend to live together in friendship groups. So with this in mind, how should you rent your HMO? Here’s just some of the advantages and disadvantages for you to consider…
Rent a HMO property by room and there’s:
- Potential to make a large profit, which typically works out as more than renting out the entire house. Why? You can charge a higher amount of rent per room.
- A good chance that if one tenant leaves you won’t be left in a finical dilemma as such, as only one portion of the property’s potential income is lost.
- A better chance that if something does go wrong, expelling tenants will be easier. Evicting groups of tenants can be tricky.
- No need to issue an EPC – a requirement you would be required to make if renting the entire house. Not that these cost all that much to get done – usually around £60.
But you should also consider that:
- HMO properties that are rented by room are often more faff to manage as tenants come and go. In this case you’d probably be best employing a management company.
- Tenants are less likely to know each other well, which could lead to disagreements and a larger chance of your property being damaged or vandalised. It could also mean that theft of personal belongings becomes more of an issue.
- Tenants will also only be responsible for the condition of their own room. So if there’s damage caused in a communal area, it can be very often hard to prove who is liable.
- A HMO property rented out by room is also typically harder to do maintenance on or carry out any form of inspection. If the people in a HMO know each other then it’s far more likely they’ll all be in or out at similar times.
- A higher tenant turnover may also mean you need to spend more on advertising each year in order to keep the rooms full. All of which eats into your yield.
Rent a HMO property as a whole house and there’s:
- Far less hurdles to jump through when charging for damages to your HMO rental. Chances are if the tenants know the culprit, they’ll grass them up anyway, as they don’t want to be charged for something they haven’t done. Not that it matters though, because in this case you have the right to fund the repairs out of the tenant’s deposits.
- Less worries over money as unlike renting by room, you’re guaranteed the full rent, even if someone decides to leave the HMO half way through the tenancy. So you could argue that providing you find the tenants in the first place, that this option is more financially secure.
- A slimmer chance of damage to your HMO as your tenants should be relatively familiar with each other and on good terms. However, that’s not to say that couldn’t all change.
- Little but no need for a HMO management company, as you’ll likely be dealing with the same tenants for a long period of time. Student lets that are rented out per year are prime example of this.
But you should also consider that:
- It’s possible you could achieve less rent opposed to renting by room. Suppose that’s the trade-off you take for longer and hopefully more secure tenancies.
- You must invest in an EPC before the property is let. Without one you won’t legally be able to rent your HMO! You should present your EPC at your HMO inspection.
- If one tenant decides to leave, it’s often hard to find another to take their place.
TIP: Don’t overcrowd a HMO rental otherwise you could also be breaking the law. The minimum room size for a HMO is at least 6.51 square meters. Fail to adhere to this when doing your renovations and you could be denied a HMO license by the council full stop. A costly mistake.
How profitable a HMO rental could be, is actually pretty difficult to say, as it’s hinged on not only how you use it, but also external factors too. For instance:
- Where you invest – Buying the right house in the right area is key. Fail to do this and you’ll find it hard to attract tenants and in turn, make a profit.
- Your budget – Try to enter a competitive market with a small budget and you may find yourself being outpriced by other landlords.
- The habit of renters – To make a HMO property profitable, you first need the tenants. You can have the best HMO on the market, but without the demand, you could well be at a loss. Exactly why you also have to use your budget to boost visual appeal and practicality too.
But saying that, most HMOs if managed properly can return a solid rental yield and prove to be profitable in the short term as well as the long run. So this beggars the question…
Ultimately, whether you choose professional HMO management or not depends on the size and type of your portfolio. In the case you have a couple of HMO properties as long term lets then it’s likely you get away with managing them yourself. It’s when you rent by room that management can become tricky.
Juggling maintenance with inspections as well as the coming and going of tenants, can prove to be a challenge, particularly from a logistics point of view. The more frequent your tenant turnover, the more complex this all becomes.
Let’s face it, coordinating viewings around X amount of other tenants isn’t as easy as it sounds. As is trying to inspect your property without infringing your tenants’ privacy, when each one of them is on a different schedule. A set of complications you can do without when managing a hefty portfolio. For these reasons it’s often said that HMOs are the hardest residential property investment to manage, so if you’re after a more hands off approach then investing in professional HMO management could be a wise move.
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