What is a HMO Property?
Many people wonder “what does HMO stand for?” A HMO (House of Multiple Occupation) is a building or a part of a building (such as a flat) that is occupied by three or more tenants. Most commonly, a HMO is where three or more unrelated people occupy a house and share facilities. Each person pays their own rent for a bedroom within the property and share facilities such as the toilet, bathroom or kitchen with the other tenants.
Sometimes called a ‘house share’, could include:
- Three friends renting a 3-bedroom property
- A brother, sister, or other members of the same family and a friend renting a 3-bedroom property
- A married couple and a friend renting a 3-bedroom property
- An unmarried couple and a friend renting a 2-bedroom property
There are also other ways in which the occupation of a building constitutes a HMO, and these are defined in Sections 254 - 259 of the Housing Act 2004.
For protection from poor conditions in HMO’s, the government regulates the quality of the accommodation. This is so the conditions within the HMO are monitored and there are not too many people living in the HMO.
If you are planning to change the use of a property for HMO, then it’s advisable to consult the planning department and apply for a HMO licence (see below). If your planning is not approved, a HMO licence will have no bearing on the matter.
Another common question is “what is a HMO licence?” A HMO licence is required if you are letting out a large HMO in England or Wales. Since 1 October 2018, a HMO licence is mandatory for a private let property with five or more tenants with shared facilities. This is required irrespective of the property and number of stories. Without this licence, landlords are committing an offence and can be prosecuted or issued with a fixed penalty of up to £30,000.
Your property is defined as a large HOM if all of the following apply:
- 5 or more people who form more than 1 household
- some or all tenants share toilet, bathroom or kitchen facilities
- at least 1 tenant pays rent (or their employer pays it for them)
- married or living together - including same-sex relationships
- relatives or half-relatives eg grandparents, aunts, uncles, siblings
- step-parents and step-children
The conditions required can vary from councils across the country. However all state that the residential property must be suitable for the number of occupants. This will depend on the property size and number of facilities. The landlord or agent must be considered to be ‘fit and proper’. This means they have no criminal record or are of in breach of landlord laws or code of practice.
You must also:
- Send the council an updated gas safety certificate every year.
- Install and maintain smoke alarms.
- Provide safety certificates for all electrical appliances when requested.
- You will need a separate licence for each HMO properties you run.
How many years is a HMO licence valid for?
A HMO licence is valid for a maximum of 5 years and as a licence holder you must renew your licence before it runs out.
How to apply for a Licence?
For the public register of licences for houses in multiple occupation you have to apply to the housing department of your local council. There are a number of standards you will have to comply with in your property, including maximum room sizes. The UK national minimum room size for a single person is 6.51 Sqm and double occupation is 10.22 Sqm. Check this with your local authority.
What Tenant Type Should I House in my multiple occupation HMO?
Before buying your first HMO it is worth considering who will be your target market. Each tenant group have their own pros and cons. The main tenant types for HMOs are:
- Asylum seekers
Student HMO's are probably the first tenant group which investors think of when HMO's are mentioned. Quite often people have fond memories of their time at university, the friends they made and the experiences.
Positives to owning student HMO's:
- Rent can be paid upfront and well in advance of term-time
- Quite often parents are guarantors and keep their offspring in check, if required
- Generally, rental voids are minimal due to term times and students wanting a base for at least a year
- Students love to party! Sometimes too much and issues can arise, anti-social and complaints from neighbours
- Above average wear and tear
- If the property remains vacant and misses the time-frame for students looking for accommodation it can be hard to find other tenants
Above are some of the positives and negatives with owning student HMO's.
Professional HMOs have two tenant types, white collar and blue collar. White collar HMO's are typically for professionals who typically workday shifts in office roles. Blue collar HMO's are typically shift workers who work various times of day and night.
Sometimes both groups can live together but there can be issues surrounding movement and noise around the house at unusual hours.
This tenant group could be deemed as the highest risk. Generally, HMO's with 'benefit tenants' suffer from higher levels of deterioration and ongoing maintenance, anti-social behavior issues and arguing within the household.
Monthly rent can be paid direct from the local authority, minimising rental arrears.
Very similar to LHA/Benefit tenants but the major difference would typically be a charity or organisation would lease the property for a period and be responsible for upkeep and maintenance, while paying the rent each month. These leases can be from 2 to 20 years.
Although lending and insuring asylum seeker HMO's is challenging, the rewards can be extremely lucrative. The Home Office (via approved companies) will give leases on properties for 5-10 years, covering all ongoing maintenance and repairs. All the landlord has to worry about it the fabric of the building. NEPI manages c120 properties on this basis and generally very few issues.
Single occupancy versus HMO for profits
HMO properties typically provide multiple income streams from the property, therefore returns can be much greater than single occupancy properties. HMO require more work managing them which is where property management companies can be beneficial. If a property isn’t fit for HMO, a conversion will be needed; this means there will be a higher upfront cost.
North East Property Lettings & Management (NEPLM)
If you would like to know more about HMO properties or are looking for a letting agent to manage your HMO, contact us today. NEPLM is one of the top property management companies in the North East. We can help with tenancy agreements, all the health and safety checks, fire safety, and HMO licensing. We have a number of HMO landlords in our portfolio, so if you need help with your licence application, get in touch today
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