An HMO stands for a house in multiple occupation. An HMO can cover many different types of properties and accommodation. Some common examples of HMO’s include the following:
- Shared Houses (3 or more residents from separate households)
- Hostels
- Private Halls of Residence
- Blocks of Converted Flats
- Employee Accommodation
- Lodgings
- Refuges
The best way to define an HMO is that they are properties with multiple tenants that share some facilities with each other such as bathrooms and kitchens.
HMO property features
There is a certain criterion that needs to be met for a property to be classed as an HMO. There are four common features that all HMO properties must have:
- Occupants aren’t from a single household
- At least one of the occupants needs to be paying rent
- The property or accommodation should be solely used for residential purposes
- The property must be used by the occupant as their main residence.
Different rules may apply to other types of HMOs such as entire buildings; however, the four mentioned features apply to individual properties, and these conditions must be met in order to be declared an HMO.
How HMOs differ from other rental properties
HMOs are held under strict scrutiny from local councils in terms of health and safety standards. If a tenant raises any concerns, they will likely be acted upon if they are brought to the attention of a tenant liaison officer and the local council.
The significant level of scrutiny that HMOs are placed under by local authorities is a major difference when compared to other rental properties. Landlords of HMO are at risk of prosecution if they do not address issues identified by tenants that local councils also deem to be an issue.
Standards that need to be maintained in HMOs
Because of the scrutiny HMOs are put under in terms of maintaining health and safety, it’s important that HMO landlords keep on top of regulations in order to comply with the high standards. If you are managing an HMO, then you should always consider the following when completing health and safety checks:
- Fire safety – ensure smoke detectors and carbon monoxide alarms are fitted and working in all necessary rooms
- Gas – ensure to check this annually
- Electrics – Ensure they are thoroughly checked every five years
- Ensure a high level of cleanliness in communal areas
- Provide adequate rubbish disposal facilities
Understanding HMO licensing
If you are letting an HMO, the likelihood is that you will need a relevant license. However, you only need a license if your HMO is deemed big enough to be classed as a large HMO. A property usually qualifies as a large HMO if the building is at least three storeys high, has shared facilities amongst the occupants and if the property is let to five or more tenants from more than one household.
Smaller HMOs may not actually need a license, but it is best to contact your local authority to double check.
Converting a property into an HMO
There can be a lot of benefits to converting your property to a HMO, and it’s something more and more landlords have been looking to get into. Converting a property into an HMO can require a lot of work but the potential returns can be significantly higher when compared to regular property rentals.
In order to convert your property into an HMO, you need to make sure your property meets certain criteria. As well as needing to potentially apply for a license, you also need to uphold safety regulations. You will also need to ensure that your rooms meet adhere to the guidelines set for the minimum room size requirements.
- The area of any room used as sleeping accommodation by one person over the age of 10 cannot be under 6.51 square metres.
- The area of any room used as sleeping accommodation by two people over the age of 10 cannot be under 10.22 square metres
- The area of any room used as sleeping accommodation by one person under the age of 10 cannot be under 4.64 square metres.
- Any room in the HMO with a floor area of under 4.64 square metres must be brought to the attention of the local housing authority.
Landlords of HMOs must also ensure there are no overcrowding issues within their properties. The regulations state that any room used as sleeping accommodation in an HMO must not be used by more than maximum number of people specified in the license.
Pros and cons of adding an HMO to your property portfolio
When considering whether to invest in an HMO, there are a lot of factors to consider and there are both benefits and drawbacks. It is a good idea to carefully weigh up the pros and cons of adding an HMO to your property portfolio in order to decide if it a suitable investment opportunity for your own individual situation.
Pros of Investing in an HMO
- Higher rental yields – One of the main pros of investing in an HMO is the fact they have the potential to bring in a better ROI from rental yields when compared to regular rentals. HMOs are considered one of the leading investment models in the property industry due to the rental yield potential.
- Spread of risk – HMOs enable you to have rental income coming in from multiple tenants. If you are renting out a single let property, you are really on one tenant to pay the rent, so if they fall behind on their rent, you won’t be receiving any income from that property. With an HMO, there are multiple tenants, therefore if one tenant falls behind, you still have income from others.
- Simplifying your property portfolio – Trying to manage multiple properties that you own can be a logistical nightmare, so investing in an HMO is a more convenient solution. An HMO allows you to earn rental yields from multiple tenants, whilst being simpler to manage when compared to multiple tenants from separate properties.
Cons of Investing in an HMO
- Regulations and Licenses – As previously mentioned, HMOs are subject to strict regulations and you may be required to obtain a specific license depending on the type of HMO you are looking at.
- Tenant Management – Naturally, renting out to multiple tenants from different households can be more complicated to manage when compared to single households. A lot of HMOs may also have quick turn arounds, with tenants not usually looking to stay in them for the long term.
- Expensive Investment – HMOs can be more difficult to get hold of when compared to regular buy-to-lets. In addition to this, they are usually significantly more expensive and will usually require a larger deposit. Other costs such as refurbishment and management fees are also likely to be considerably higher.
