From investor to landlord: strategies for HMO success
In early 2023 it was reported that there were almost 500,000 HMOs in England, with figures set to increase in the coming years.
As they continue to gain popularity, have you considered developing or investing in an HMO property? Our latest article looks at what’s involved in having an HMO, and how property investors are transitioning to HMO landlords.
What is an HMO property?
Houses of Multiple Occupation (HMOs) is a residential property where multiple people from different households, for example unrelated individuals or groups, share common facilities such as a kitchen, bathroom or living areas.
In recent times, the UK housing market has seen a growing interest in HMOs because they attract property investors seeking higher rental yields. They can be highly lucrative due to the ability to rent out individual rooms, subsequently maximising the property’s income potential.
However, they also come with their own set of responsibilities, regulations and challenges. To succeed as an HMO landlord, Wharf Financial have created our recommended strategies for success.
Understanding HMOs
Before diving into HMO investment, landlords need to familiarise themselves with the regulatory framework. HMOs are subject to stricter regulations than standard buy-to-let properties due to the anticipated risks associated with independent tenants. Failing to adhere to these regulations can result in fines or even prosecution, so it’s important to know what you’re getting yourself into. Here are key aspects to consider:
- Licensing Requirements:
Most HMOs with five or more tenants must be licenced by the local council. This licence ensures that the property meets safety and management standards. The rules vary depending on the council, so it’s crucial to check local guidelines. - Health and Safety Compliance:
HMO landlords must also adhere to important health and safety procedures including the installation of fire doors, smoke alarms and emergency lighting. Gas and electrical safety checks are mandatory, and landlords must ensure all communal areas are safe and well-maintained. - Room Sizes and Amenities:
In October 2018, minimum room sizes were enforced in HMOs to prevent overcrowding. A bedroom occupied by one adult must be at least 6.51 square metres, while for two adults it must be a minimum of 10.22 square metres. Adequate kitchen, bathroom, and toilet facilities must also be provided based on the number of occupants. - Management Standards:
As is similar for BTL landlords, HMO landlords must comply with the Management of Houses in Multiple Occupation (England) Regulations 2006. These regulations ensure landlords are responsible for the maintenance of communal areas, the supply of water, gas, electricity and ensuring that the property is free from damp or infestation.
What Makes a Good HMO Landlord?
As well as meeting legal requirements, HMO landlords are responsible for creating a positive living experience for tenants.
Good communication with tenants is essential, as well as being approachable and responsive to help resolve any issues with minimal fuss. For some landlords the thought of managing the property themselves is not particularly appealing, so consider exploring professional property management services to handle day-to-day tenant queries.
What are the challenges of being an HMO landlord?
Being an HMO landlord can be challenging as HMOs often require more active management than single-tenancy properties, especially in relation to tenant turnover and communal living arrangements.
Additionally, managing rent arrears can be more complex with multiple tenants. It’s worth putting a system in place for dealing with tenants who miss or avoid paying rent. Sending reminders, payment plans or involving a professional letting agent to mediate can make things easier for you. Tenants not paying up on time may leave you short if you’re financing the property with an HMO mortgage, so it’s important to have cash in reserves just in case.
How to finance an HMO property
Depending on where you are in your HMO journey will affect what type of finance you can secure. If you’re at the early stages, or you’re refurbishing a property, bridging or development finance can provide flexible cash flow solutions for different durations depending on project length.
If you’re investing or you’re a landlord with an existing HMO portfolio, an HMO mortgage will be required.
Whether you’re seeking HMO finance, looking to remortgage an HMO or you’re exploring the possibility of reducing your current interest rate, partnering with expert advisers such as Wharf Financial can significantly increase your chances of securing a more favourable HMO mortgage rates.
Keen to learn more about investing or becoming an HMOs landlord? We’re on hand to help you secure competitive finance. Contact us today by completing our online form HERE.
