Here are the top 5 things to think about when renting Houses in
Multiple Occupation.
For many landlords, the idea of letting their property as a HMO
(Houses in Multiple Occupation) is highly appealing – especially
the potential for greater returns. In fact, with an HMO a landlord
could be looking at rental income of two or even three times that
of a single household. However, the day-to-day reality of letting
as an HMO is rather complex and the wise landlord needs to
carefully weigh up the pros and cons before making a decision.
For a start, the definition of what constitutes an HMO can in
itself cause confusion. At its simplest, an HMO is defined as a
property that is shared by at least three tenants who form more
than one household. But HMOs also cover houses that have been
converted into bedsits, halls of residences and buildings with more
than one flat where tenants share a toilet or kitchen
facilities.
Letting your property as an HMO does have inherent risks. But if
you are fully-informed, then the rewards can be substantial. To
help you understand the pitfalls, here are the top 5 things you
need to think about when considering letting as an HMO.
1) High turn over of tenants
HMOs are by their nature transient. Which means that as the
landlord you will have to go through the process of finding new
tenants on a frequent basis – and that also means going through the
reference checking process time and time again. It is also the
landlord’s responsibility to ensure that they keep track of exactly
who is living in their property at all times. This sounds simple,
but when it comes to tenants such as migrant workers, it might not
be as straightforward as you would like. Make sure all your tenants
have signed HMO specific contracts and don’t forget to update your
local authority with any changes in occupancy.
2) High upkeep of property
Typical HMO tenants have a reputation for not taking as good
care of a property as perhaps a young professional couple or a
family might. As it will only be their home for a short while, they
are likely to be less house proud. And that means you may have to
arrange for the cleaning and redecoration of your property on a
regular basis. In addition, some HMO tenants may not be as vigilant
when it comes to notifying you of any problems, such as cracks in
walls or damp. It’s advisable that the landlord checks in on their
property frequently to make sure that everything is in good order.
Or appoint a trusted individual who can do that for you. All
landlords have a duty of care for their tenants. And ultimately if
anything goes wrong the responsibility will lie with them.
3) Stringent health and safety
If you are thinking of converting a building so it can be let
out to multiple tenants there are specific planning, building,
environmental, health and fire regulations that you must comply
with, which are above and beyond the usual obligations of a
landlord. These include ensuring the layout meets minimum
standards, the property is maintained in a safe and habitable
condition, stairways, passageways and fire escapes are kept clean
and free from obstructions and fire extinguishers and fire alarms
are tested and maintained. If you are currently letting to a
family, but want to let it by the room to a group of 3-6 tenants,
such as students or professionals, you will need to apply for
planning permission – which costs around £335. Then you may need to
carry out additional work to your property, for example you may
need to fit fire doors. The initial investment of ensuring a
property meets the legislation necessary for an HMO can be higher
than other lets. But if you fail to meet them, it could have
serious consequences. A landlord was recently fined £20,000 for
breaching fire safety regulations. So make sure you understand all
of the regulations involved. The Association of Residential Letting
Agents (ARLA) is advising landlords to check with their local
authority or a licensed ARLA agent before converting a property to
an HMO or purchasing a HMO property for investment. And you are
also advised to ensure you have adequate landlords insurance to cover you should anything
go wrong.
4) HMO licence
Recent legislation has come into force, which means that
landlords with larger, ‘high-risk’ HMOs must obtain a license. This
is a reaction to the fact that in the past many HMO properties had
poorer physical and management standards than other privately let
properties. The license is intended to make sure that HMO landlords
are ‘fit and proper’, that the property is suitable for occupation
by multiple parties and that the standard of management is
adequate. However, the licensing only applies to certain types of
rented accommodation. Contact your local council who will be able
to tell you if you need a license and talk you through the
necessary checks to provide you with one if you do. Remember, it is
an offence for a landlord to operate certain HMOs without a licence
and you could face penalties of up to £25,000.
5) Landlords Insurance
Some insurance companies are unwilling to provide cover for
rental to HMOs because of the perceived risks involved. So you will
need to approach a specialist landlord’s
insurance company, such as Towergate. Towergate are one of the
few insurance companies to provide cover for letting to typical HMO
tenants such as students or DSS claimants. They also provide cover
for vacant periods and for rent default, both features which may
prove necessary when renting to HMOs. Make sure you talk to your
insurance providers about the type of tenants you have, and keep
your policy updated if there are any changes, or else you risk
invalidating your cover.
Letting as an HMO could be the best way for you to get a
significant return on your property investment. But make sure you
enter into this richly-rewarding market fully armed with all the
information you need.
