A Guide to Managing HMOs for Landlords

Houses of multiple occupancy (HMOs) can be a lucrative option for landlords. The rental yields of an HMO generally higher than those for typical family homes, however they can be a bit more difficult to manage.

The research conducted during 2019 by Precise Mortgages revealed that the rent yields averaged around 6.3 percent, as in comparison to 5.5 percent overall in the buy-to-let sector. This means that HMOs are popular among professional landlords who want to earn a higher quality, more stable net rental revenue. However, it is important to note that HMO management London is more labor-intensive due to the higher degree of bureaucracy that is involved. In this article, we’re going to provide you with the basics of HMO managing for tenants.

What exactly is an HMO?

An HMO within England as well as Wales is a house which houses three or more persons who reside in two or more separate households who share amenities like a kitchen and bathroom. In Scotland the definition of an HMO is considered an HMO where it’s owned with three tenants unrelated to each other who have a bathroom, kitchen or toilet. HMOs can be referred to as “house shares”.

In the past, properties had to be at least three stories high for it to qualify as an HMO however, this requirement was repealed for landlords who reside in England as well as Wales in the year 2018.

What is a large HMO?

Large HMO is a house that is let to more than five people with 2 or more families. Like the previous examples, they also are able to use common facilities, such as bathrooms and kitchens. Large HMOs require a licence to operate in England or Wales.

In certain areas, the landlords of smaller HMOs have to also obtain a license So it’s best to determine if you require permission before making any investment.

Be aware that various councils use different criteria to define what constitutes and what is non-HMO. Also, make sure to review the guidelines provided from your authority prior to you begin.

The benefits of HMOs

The primary advantage of HMOs is their increased rent yield, however the demand for these types of homes is more high, because shared housing is cheaper.

33 percent of tenants are within the 25-34 age group. This is the largest group likely to lease the room of an HMO. Additionally, HMOs appeal to students and other workers who require temporary accommodation. The demand for HMO accommodations is usually greater in cities and towns and where young people usually aren’t able to afford an apartment that is self-contained.

Due to this flexibility, HMO landlords usually have less empty periods. Even if there is an empty space for a short period of time however, you’ll still earn money from other tenants.

The same reasoning applies to HMO landlords are protected from the pitfalls posed by rent arrears.

The dangers of HMOs

Some properties are not suitable for conversion to an HMO. This kind of rental model favors larger, older Victorian homes with larger rooms and multiple floors. These properties are more lucrative however the cost of maintenance will usually be more expensive because the structure is older.

The inability to find suitable homes can make it more difficult to find one that is at an affordable cost in case your budget isn’t too big.

HMO landlords have to be more financially secure as they venture into the market. It is expensive to convert a family house to an HMO or when you follow the guidelines for planning. HMOs are generally furnished. You will have to buy furniture for bedrooms and other pieces of furniture that are used for communal spaces including dining tables, sofas, and chairs.

The management costs are more expensive for HMOs. You may want to plan for a regular cleaning service in communal areas, as well as gardeners (if there is gardens) so that your property stays in good condition.

It’s more difficult for a seller to market an HMO due to the fact that they are restricted only to HMO landlords. If a property is transformed to an HMO and is rented out to regular buyers, the majority aren’t interested in it due to the cost of changing it back to the home of a family. That means capital growth will be limited.

It’s not always easy to get mortgage financing for an HMO However, there are lenders available when you look around However, the majority are provided by specialist lenders like Aldermore as well as Gatehouse. A lot of deals are available through brokers, however some lenders, such as Leeds Building Society. Leeds Building Society, do deal directly with landlords.

Are you a fit and proper Person?

If a license for a landlord is required for running an HMO The landlord has to prove to be a “fit and suitable” person. The applications are evaluated according to their merits individually, however, if you’ve had previous convictions for crimes such as fraud or violence, drug offenses and other offenses You may not be eligible for a license.

How Every HMO Landlord Needs to Do in order to be Compliant

There are many aspects to HMO management that apply for all landlords and we won’t go into the subject in this article.

For instance, HMO landlord must carry regular repairs and keep their properties in good repair. As with other rental property it is also necessary to safeguard the deposit of your tenants by an approved scheme by the government. And and so on.

The following regulations and rules are specifically applicable to HMOs.

Fire Safety

The safety of fire in HMOs is, perhaps, the most important aspect. This subject could easily fill the entire article by itself, and therefore we will not go into detail about it here.

Due to its nature as an HMO is regarded as more prone to fire in comparison to a normal purchase-to-let property. Therefore, you’ll have to meet the certain fire safety standards in order to be eligible for an HMO license.

They include:

Installing fire-safety doors
In addition, fire extinguishers are provided as well as blankets for communal areas such as kitchens
Installing smoke alarms that are connected to the mains
CO alarms installed in at-risk rooms, for instance rooms with gas appliances
Higher-end HMOs that have three or more floors may require a fire alarm installed
Locks and door handle accessories are fitted

Local authorities have their own unique rules and regulations. Contact the neighborhood HMO Enforcement Officer to find out more.

After you have obtained an HMO license and tenants have been enrolled and you have tenants, you must ensure that the your fire escapes are in good order, i.e. not obstructions by pushchairs or bicycles. It is important that tenants are aware of how to use fire-fighting equipment and that the equipment is kept in good condition and not altered with.

Minimum Room Size

The RLA’s website indicates that, at the time of writing, October 28, 2018:

A HMO licence issued in accordance with the Part 2 of the Housing Act 2004 (that is under mandatory and other licence schemes) must be accompanied by conditions that oblige the holder of the licence to make sure that any space which is used for sleeping is:

At least 6.51 per person aged 10 or more;
At least 10.22 sq m for two people older than 10 years in addition to
A minimum of 4.64 per square meter for a person under the age of 10 years.

These are the minimum sizes. Local authorities may stipulate in their licensing guidelines that rooms be larger however they aren’t able to make this a requirement. If your HMO includes rooms smaller than 4.64 square meters, you should notify your local authority.

Include Contact Information inside a Communal Area

Managers and owners of HMOs must according to The Management of Houses in Multiple Occupation (England) Regulations 2006 and The Management of Houses in Multiple Occupation (Wales) Regulations 2006 to provide contact information for the property manager/landlord/landlord of the house to every HMO household, and to display the information in a common space of the HMO.

Waste Collection

Licenses for landlords granted in the months following October 2018 will have an obligation that states HMO landlords must adhere to the waste storage and disposal plan.

You must make sure that there is a suitable location where recycling and refuse bins can be kept in a neat and tidy manner
Bins must be stored in a neat and tidy way
It is recommended to inform tenants with a clear explanation of the times when recycling and refuse collections are scheduled to take place.
Inform tenants about the recycling options available to them and what is to go in the general bin for waste

Communities are often plagued by the stench of waste resulting from poorly-managed HMOs.

Landlords who do not maintain a strict watchful eye on the disposal of waste in their HMOs could be penalized with up to PS30,000. A string of violations could cause the cancellation of your landlord’s licence as well as the imposition of a ban.

Furniture must be clean and suitable for the purpose

HMOs typically are let on an furnished basis. At the start of the new tenancy the landlord must ensure the cleanliness of furniture and ensure it is unharmed. Furniture within the HMO is required to be fire-rated in accordance with the Furniture and Furnishings (Fire) (Safety) Regulations 1988. This includes sofas, beds cushions, mattresses and even sun loungers for the garden.

Modern furniture is usually equipped with an ‘F’ label, however, if you buy an old, second-hand sofa or similar one, be sure to examine.

The regulations do not apply to soft furniture such as curtains, sleeping bags, or bedding.

Converting an existing property into an HMO

The best scenario for getting in to HMOs could be when an owner purchases an existing HMO which is already in place with tenants already in the first place. In this case there’s not any work to be done. If you’re looking to learn more about beginning from scratch, or if you would like to buy a property and turn it to an HMO take a look.

Set a Budget

Plan the budget for the project. There’s no point in changing a home into an HMO in the event that the work is so extensive that you don’t be able to recoup the investment for at least 10 years. Consider the work to be done and gather estimates. Be aware of all costs including the smallest ones such as providing beds or buying boxes of paint.

Local authorities conduct inspections when a residence is converted to an HMO. The Housing Health and Safety Rating System (HHSRS) risk assessment is carried out within five years after the conversion. If any issues are discovered the issues must be rectified.

Rememberthat unlawful HMO conversions could cause heavy fines or the property being taken away.

If you’re a homeowner with either a standard or residential buy-to-let mortgage on the property, notify your lender of the plans. They may require you to switch to a mortgage that is specialized. Failure to notify the lender could result in the lender having to withdraw their funds.

Some properties are not suited for the HMO conversion. Some are too small. The best homes are usually large or older. Ideally, homes should contain at minimum two reception spaces in order that even if one of them is converted into an bedroom, the property includes a common living/reception area. Although it’s not required, it makes the property more appealing to potential tenants. If it’s not possible then the kitchen must be spacious enough to accommodate an eating table and chairs.

If you are considering converting to an HMO consider the following aspects:

The structure must meet a certain standard. The electrical wiring will require an inspection by a certified electrician, who will provide to you the Electrical Installation Condition Report (EICR). Lighting for emergency situations should be installed throughout the entire area.

Be sure that there isn’t any asbestos in the building (be alert if the house was constructed prior to 1980).

Additionally:

Does the roof appear to be in good condition?
Are the walls well-insulated?
Do the bathrooms and kitchen require a makeover?
Are there enough bathrooms or toilets for the amount of tenants?

Before you convert your attics and reception rooms, be sure they’re big enough according to the guidelines for minimum size rooms. Make sure that the work is completed by a qualified contractor and that plans are sought in the event of need (check with your city’s planning departments).

Each bedroom requires a door lock and preferring using a locks that can be turned by a thumb.

In bigger HMOs with multiple units, multiple kitchens and bathroom might be required. It’s worthwhile to invest funds and time into fitting good bathrooms and kitchens. Include features like heated towel rails, and easy-to-clean walk-in showers.

Be aware of outdoor spaces as well. Tenants would like a place that they can relax in the summer and have a drink with family and friends, cook a meal or just relax. It is not necessary to plant flowers in your garden, but a beautiful deck or patio area can be a good draw for prospective tenants. Set up some garden furniture and an area to keep it in.

Decorate the property when all construction work is completed. The fresh coating of paint can improve the look of the home.

If there are tenants lined up and your property isn’t decorated yet Let them pick among a range of colors paints. This will help the property feel more homely for them.

The process of setting up an HMO

Before you begin advertising for tenants, be sure all is in order. The property must be suitable for human use (free from pests, damp and warm, as well as well maintained). All things must be in functioning order, and if necessary you need an approved landlord license.

Check around. Do you have enough space to accommodate the number of tenants you’ve in mind? Are there enough toilet/kitchen/bathroom facilities? The larger HMOs require more than one bathroom , and kitchens could benefit from having more than one fridge or washing machine. If you’re not sure what to put in take a look at other HMOs around the region to see how they’re constructed.

All your documents are in order and have extra money in reserve to deal with any cash flow issues.

Make sure you check the landlord’s insurance. Some landlord insurance policies do not are covered by HMOs. You might need a specialist policy.

Create a cash flow plan in place. Plan for voids and property damage, as well as the more frequently replacing of the fixtures and equipment. Are the additional costs associated with operating an HMO justify the investment? If not, consider if this is the best business model for your needs.

Determine if you’d like to oversee your HMO or if you’d prefer to outsource the task to a seasoned let agent. Be aware that there aren’t all letting agents capable of managing HMOs which is why you’ll require a search.

Routine HMO Management

The management of HMOs requires a permanent task. Between tenant complaints to maintenance routines and visits it’s not something that you can fit into a few hours on a weekend afternoon. There must be someone always available – make sure that you have a backup who is on call if the person isn’t you.

Because there will likely to be maintenance issues on a regular basis you should have a trusted tradesperson or a handyman to repair things like an unblocking sink or a broken locks at a moment’s notice.

Finding the right tenants

The proper tenant mix is crucial to HMO harmony. It’s a good idea to choose people who are more likely to be on in the same home.

The houses are more harmonious when the people who live there share similar lives. For instance, a group consisting of young professionals who live lively social lives and decent incomes is a better mixture than a random mix of working and students. It is in your best interest to draw birds of feathers. There will be fewer arguments and non-renewal periods.

Make a list of ideal tenants in mind and search for applicants who meet the description. If you have current tenants who like each other, you might consider giving them input in the screening process for tenants.

Everyday HMO Problems

When a group of unrelated individuals reside in the same house there is a tendency for personality conflicts and other disagreements to occur.

When dealing with conflicts between tenants, try to stay neutral and professional.

Instruct your tenant to resolve the issue at home, but if needed you can intervene. Contact all parties involved and attempt to form an understanding of what’s happening instead of hearing just one side’s grievances.

Talk to tenants with issues and inform them that if they fail to solve the issue They could be requested to quit. Inform your tenants about your actions to ensure they don’t feel like you’re not paying attention to the issue. Be aware that if you wish to remove a tenant who is a problem you’ll require evidence of their behavior like video messages, text messages photographs, or even evidence from others. It’s better to not evict the tenant, therefore you must discuss the issue with them whenever you can. If they’re making it difficult for the tenants, but they don’t seem to be willing to take action, do it immediately and swiftly.

And lastly…

The running of an HMO is not something you can take on without looking up. There’s a lot to consider. If you do not have prior experience in this field you should consult experts first. Talk to the local housing officer in your area to learn what is required of your side as an HMO landlord. Talk to letting agents and the other HMO owners in your region. Check out the web and pick the opinions of your neighbors in forums on the internet.