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Your Step-By-Step Guide to HMO Property Investment

House sharing or multi-let accommodation for students and professionals is in greater demand than ever. As HMO investment innovators since 2011, we have put together a step-by-step guide to help you gain a deeper understanding of the benefits this type of property investment can bring.

Those interested in HMO investment and specifically multiple occupancies will find the following information a great help.

What is a House in Multiple Occupation (HMO)?

In its most basic form, it is better known as a house share or shared accommodation. It is simply a property which is rented by at least three people, who do not belong to one household, who have shared access to common areas such as a kitchen or bathroom.

How many occupants can a property have?

You can have a small property which can be occupied by less than five people. More than five people sharing will require a license from your local council.

Why do I need a license?

The HMO license is there to protect you, your occupants, and the local area. The council requires details of the HMO management, HMO type, and how many people live at the property. If the council requires you to have a license, they are valid for five years. If you have several HMOs, you may need a license for each one.

How do I obtain a license?

You submit your application to the council and pay your fee, which can be anything from £300 to over £1,000. It all depends on several factors, and the two most important are: satisfying the property regulations and having nothing unlawful marked against you. There is an unlimited fine for renting out an HMO without the correct license, and the license can be revoked!

Are HMO good investments?

A multi-let property can bring incredible financial advantages in comparison to a buy to let property. Working with an experienced HMO company helps to ensure you can make a good return whilst cutting through all the red tape and handling everything yourself.

What yield can I expect on an HMO investment?

HMO investment properties are a sound investment when it comes to returns, student accommodation, for example, can provide a yield of over 20% per annum. HMO yields are often much higher than standard residential property lets.

Does an HMO investment require planning permission?

Suppose your HMO property has less than six tenants and changed from a family dwelling (C3) to an HMO design (C4). In that case, you do not need planning permission unless there is Article 4 directive in the area, which is excellent news because many HMO investments are well suited to terrace houses and, therefore, rarely require planning permission.

If your HMO investment has more than six occupants, you will be required to obtain planning permission. It is always worth working with a professional HMO specialist who can take care of all these elements for you.

What is the difference between room-only renting and entire house rentals?

Professional renters generally relocate more frequently, especially if they are graduate professionals and they will tend to lean towards room rentals. In contrast, students seeking accommodation will often prefer to rent in a group.

What are the benefits of the room only renting?

You can charge a higher rent.
You don’t lose a whole group if a single tenant leaves.
You can have an agreement and evict if necessary.
An energy performance certificate (EPC) is required for the whole building.
You can only be excluded from individual rooms and not the common areas.

What else should I consider when renting room by room?

Potential for a higher turnover of tenants.
The tenant is only responsible for their room and not the common areas.
You will be responsible for the operations and management unless working with an experienced HMO management company.

How does the lease agreement work on an HMO property?

In most cases, a standard Assured Shorthold Tenancy (AST) is required for renting an HMO investment property. The group signs it as a singular tenant, and if renting a room only, each tenant will sign their own tenancy agreement. If you are also residing at the property or considered a lodger, you would have an Excluded Tenancy Agreement, which gives less protection from eviction.

Can I enter the property at any time?

If you have an Assured Shorthold Tenancy agreement with either a group or are renting the rooms to individuals, you give the tenants exclusive rights over the room or the property as a whole. This means you are required to provide the tenants with 24 hours’ notice before you or anyone else – such as service providers – can enter the property.

Does the property need to meet a certain standard?

If you are investing in HMO properties to ensure you get a good return on investment, then it makes sense to keep your property maintained to a high standard. But it is also worth noting you are required, by law, that you need to keep your property to a safe and liveable standard for your tenants. You will also need to research what requirements the local council has too.

The better standard of property you provide, the higher the rent you can charge and the happier your tenants will be.

Are there safety requirements for an HMO property?

Fire safety is of paramount importance. Your property must meet the Health and Safety Rating System (HHSRS) standards, which means:

You must ensure all fire exits are well signposted and kept clear.
Fire extinguishers are to be available with instructions, and smoke alarms are fitted and checked regularly.
Regular gas and electricity safety checks are to be performed
You have to provide property management information and contact details.
All shared areas are to be kept safe and with working equipment.

About HMO Property Designs

Headed by sales and acquisitions manager Daniel Sixsmith, HMO Property Designs offers multi-let property investment opportunities in the Northwest of England. They provide industry-leading news, information and expert commentary on the HMO investment sector. [].

Read more:
Your Step-By-Step Guide to HMO Property Investment

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