Potential landlords can often be caught in the dilemma of whether to buy a buy to let (or two) or go the whole hog and invest in an HMO property.
Due to its more complicated nature (HMOs involve strict licensing and rigid planning procedures), not to mention cost, many landlords avoid going down the HMO property route. And yet, this can prove an extremely lucrative strategy – one that is certainly worth considering. In this article we’ll give you the ins and outs of being an HMO landlord.
You may be wondering ‘what does HMO stand for? Well, an HMO property is a house or flat rented by three individuals who aren’t related and who live together as the one household, sharing facilities such as a kitchen and bathroom.
There are various types of HMO tenants you can expect to find in the UK today, such as students, young professionals, workers and those who are classed as Local Housing Authority tenants.
Certain properties, with lots of tenants, are classed as HMO exemptions. These include student Halls of Residence and boarding schools, as well as accommodation for the police, fire brigade and NHS.
All landlords of HMO properties much get approval, and then a licence from their local authority. This is under the Housing Act of 2004, and which came in to force in 2006.
The cost of an HMO licence varies by local authority area. In Chesterfield it’s £400, for instance, while in London’s Kensington and Chelsea an HMO licence costs as much as £1400.
It also depends on how many HMO properties you have – the more you are the landlord of, the bigger the discount. HMO licences have to be renewed every five years (more frequently in some authorities) but this is less expensive than the first-time round.
This is often in areas where there are already a high number of HMOs and the local authority wants to introduce families to provide more of a community feel. This means the number of HMOs in the area is restricted.
The Lease (or HMO Tenancy Agreement) for an HMO property is usually an Assured Shorthold Tenancy (AST). It can either be for a group or, as in most cases, an individual room.
This is what is legally expected in each HMO property in terms of size of rooms and provision of amenities (ie the HMO requirements). This takes in to account the number of bathrooms and washing facilities per group of tenants. It also looks at heating, shared kitchens and, importantly, fire precautions. The latter HMO requirement is very detailed for large HMOs and includes holding regular fire drills, as well as ensuring the property has fire doors and firefighting equipment on each floor.
Due to the higher number of tenants and the more frequent change overs in an HMO rental, the wear on the property fixtures and fittings is much higher than in a standard buy to let. This means there will always be more maintenance involved, including repainting more regularly.
To own and run an HMO property you’ll need a special HMO landlord mortgage, rather than just a normal buy to let mortgage. The HMO mortgage allows you to multi-let and using a standard landlord mortgage means you’ll be in breach of your lender’s terms. You could then lose your mortgage – and your HMO property if you can’t find funding for it.
It’s possible to secure a bridging loan within seven days to tide you over with yourHMO property until you can find suitable long-term funding.
Taking out insurance is essential with an HMO rental. You’ll have to anyway, for the building, but a good insurance policy can also cover other areas of your investment. This includes
Rent Guarantee where you can be covered for void periods for up to six months with some policies. It may be that you also get insurance to protect furniture damage or theft.
Public liability is another good insurance cover to have. That’s because if a tenant or their guest injures themselves due to falling plaster, a loose floorboard or some other ‘negligent’ activity on your part and tries to sue then the insurance will cover any court costs and damages awarded.
The cost of HMO landlord insurance depends on how many areas you want to be covered for and whether or not you are prepared to shop around for the best deal. It also considers the number of tenants in your property, together with where the HMO property is located.
Do you have any questions about the topic above? Our team of experts is here to help in answering any query you may have.
Fueled by his desire to be the best, most reputable estate and lettings agent in town, Steve has spent his career cultivating The Property Shop. Steve prides himself on his authenticity, honesty, and knowledge-base which is emulated by The Property Shop and his team.
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