Free Resource - Everything you need to know about HMOs

Discussion in 'HMO & Multilet Property' started by totallyproperty, Feb 16, 2016.

  1. totallyproperty

    totallyproperty Administrator Staff Member

    Houses in Multiple Occupation (HMO)

    The chances are if you have been looking towards property investment in the UK you will have come across the term House in Multiple Occupation (HMO) which as the term suggests is a house with multiple occupants. The reason why they have become particularly popular is because they can generate significant double-digit rental yields and strong cash flow.

    We will now look at some of the more common questions with regards to HMOs to give you an idea of what they are and how they are regulated.

    What is an HMO?

    An HMO is basically shared accommodation, which can be in either a house or a flat. The HMO planning classifications centre around the number of “unconnected” tenants living in the property and whether they share facilities such as a bathroom, kitchen, etc. If there are at least three tenants making up more than one household then this is classified as an HMO.

    HMO Licensing

    There are some variations across the UK but in basic terms it is only large HMOs with at least three stories in use, a minimum of 5 tenants creating more than one household, all using shared facilities which require a mandatory license. If you are venturing into the HMO market it is worth checking with your local council to see their specific regulations on HMOs because there are potentially significant fines if these regulations are breached. Some areas are also considering bringing in licensing for small HMOs also so always check with your local council before purchasing an HMO property.

    The webpages below will allow you to search for the relevant local authority and check their HMO regulations:-

    https://www.gov.uk/house-in-multiple-occupation-licence

    http://local.direct.gov.uk/LDGRedirect/Start.do?mode=1

    http://local.direct.gov.uk/LDGRedirect/MapLocationSearch.do?mode=1.1

    http://www.gov.scot/About/Government/councils

    http://www.wlga.gov.uk/authorities

    http://www.nidirect.gov.uk/local-councils-in-northern-ireland

    HMO Planning Permission

    In 2010 the authorities brought in new planning regulations to cover the HMO market. It was deemed that Class C3 dwelling houses could be upgraded to Class C4 HMOs with no additional planning permission required. However, it is worth checking this situation with the local council when looking to build or convert a property to an HMO.

    The situation for larger HMOs is different, houses with at least 7 unconnected tenants sharing facilities require planning permission to convert to a larger “Sui Generis” HMO. An array of factors will need to be taken into consideration when converting/building a larger HMO including fire doors and other safety-related regulations, most of these requirements are detailed in the relevant HMO licensing pages on your local council and can differ slightly council to council so again please ensure you check your specific area.

    Planning use classes related to HMOs

    In effect there are two main classes of HMO which are:-

    C4 Planning class, “Small” HMO - these are classed as small shared houses (or flats) with between three and six unconnected tenants. The property has to be classed as their main residence and, as we mentioned above, there have to be shared amenities such as a bathroom and kitchen.

    Sui Generis Planning class, “Large” HMO - the term larger HMO relates to a property which has at least 7 tenants, creating more than one household, all using shared facilities. The term “household” relates to a single person or members of the same family living in the same property, co habiting partners also class as a single household.

    Please see the specific definitions of each class on the governments planning portal below:-

    http://www.planningportal.gov.uk/permission/commonprojects/changeofuse
    http://www.planningportal.gov.uk/planning/

    Responsibilities of Running an HMO

    As we touched on above, there are legal responsibilities as an HMO landlord including annual gas safety checks, five-year electrical checks, ensuring the property is in good repair, avoiding any overcrowding, fire safety measures and all of the normal responsibilities that a landlord has to deal with but more in addition to that. These measures were brought in to ensure the safety of tenants amid concerns that some landlords had in the past overcrowded their properties to increase their rental incomes.

    Landlords have a legal obligation to their tenants and the introduction of HMO regulations has cleared any uncertainty for landlords and tenants.

    Managing an HMO

    Dealing with an increased number of (and turnover of) tenants, will inevitably increase the management time required and cost of wear and tear required, to run an HMO, but this shouldn’t put off would be HMO landlords as many of these perceived negatives can be turned into positives. With the increased yield HMOs generate you can ensure your property is well managed (by using a professional letting agent) and still highly profitable. One example of turning your slightly higher turnover into a positive is to charge a reasonable and fair check in or out fee to the tenants, which will cover any administrations costs associated with the management of higher turnover tenants but could also slightly increase your profit if your rooms are easy to fill. Imagine a portfolio for 200+ rooms each charging a £200 check in or out fee and the average tenancy was 2 years that is 200x£200 in extra fees (i.e. £40,000). You shouldn’t look to over charge tenants but certainly the worry of losing money due to higher tenant turn over shouldn’t be an issue if reasonable and fair charges are made to cover your admin costs.

    Are you looking to invest in HMOs?

    The Property Forum owner Nicholas Wallwork, offers a mentorship course which included specialist advice on developing and managing profitable HMOs (his area of expertise). You can read more about different mentoring options which are available here.

    We are keen to hear your views and tips on how you manage your HMOs. Please get involved with the conversations in this forum and share your experiences with our other members.
     
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