If you have taken an interest in investing in a buy-to-let property recently, or if you have been a landlord for some time, you will have probably heard the term HMO. But what is it, what does it mean, and what’s involved?
HMO is the abbreviation for House of Multiple Occupancy, and it is a property which is let to 3 or more unrelated people who share the bathroom and/or kitchen facilities. Also known as a house share or a multi-let, each bedroom is let on an individual basis to tenants.
Some HMO’s have bedrooms with an en-suite which means that the tenants will only share the kitchen facilities. It’s important to note that properties that provide each tenant with their own bathroom and kitchen facilities will be classed as self contained apartments or flats, and will not fall into the HMO category.
HMO’s have become very popular over the years with both landlords and tenants, for various reasons, so it’s a type of property investment worth considering when you are looking to purchase your next buy-to-let property.
There are several reasons why property investors decide not to invest in an HMO property, and one of the reasons is due to the amount of legislation that is wrapped around shared living accommodation.
It can appear daunting at first, but when you take the time to understand the criteria involved, you may find that it’s not quite as bad as you first imagined.
“You only need a small amount of the right knowledge to succeed.”
The purpose of this article is to give you the information you need so that you can make an informed decision. You may decide that investing in an HMO is not for you, which of course is fine, but at least you will have taken the time to consider all your options.
Besides, as landlords, our aim is to provide an exemplary service to our customers. If there is demand in the market for shared housing, then we should do our best to provide good quality living accommodation to meet that demand.
Table of Contents:
- Why Are HMO’s Popular With Property Investors And Landlords?
- Why Are HMO’s So Popular With Tenants?
- Who Lives In An HMO?
- Are HMO Properties More Work For Landlords?
- Who Pays The Bills In An HMO Property?
- Do You Need Planning Permission For An HMO?
- What Is Article 4?
- Do You Need An HMO Licence?
- What Is A Large HMO?
- How Many Bathrooms Does An HMO Need?
- How Many Kitchens Does An HMO Need?
- What Size Do Bedrooms Need To Be In An HMO?
- Where To Start If You Want To Invest In HMO Properties
Why Are HMO’s Popular With Property Investors And Landlords?
In summary, the return on investment can be far greater if a property is let as an HMO compared to a single let property. As an example, a typical 3 bedroom house may let for £900 pcm to a family, but may produce an income of £1,200 pcm if let to 3 individuals at £400 pcm for each bedroom.
In addition, if the same property has one or two reception rooms which are self contained, then it may be possible to utilise those rooms as additional bedrooms, increasing the rental income to £1,600 or £2,000 pcm.
As a guide, the cost of renting a bedroom in an HMO should cost the tenant less than renting a studio apartment plus utility bills.
It’s important to note at this stage, that there are restrictions and minimum requirements that each room needs to meet in order to accommodate a tenant, so please keep reading to learn more.
Why Are HMO’s So Popular With Tenants?
There are many tenants who want their own living space without having to pay the higher price tag of renting a property on their own. HMO properties provide affordable housing and are also popular because they fill the gap for people who currently live on their own and want to keep their living expenses to a minimum.
As renting a room in an HMO property is far cheaper than renting a property on ones own, it can help tenants save a deposit for their own property whilst having their own living space, if that is their goal.
Some people like living with other people and it’s also a great way for people to make new friends when they are moving into a new area. HMO’s help to provide a community feeling which can be comforting for someone when they are moving to an area for the first time.
Who Lives In An HMO?
There are 4 different types of tenants who live in HMO’s:
HMO properties are very popular with full time students who attend university. Typically, students spend their first year accommodated in halls or student flats owned by the university, and then seek private accommodation for their second and third years.
Students generally search for properties with a group of friends so they can share the cost of the rent and utility bills with each other to keep expenses to a minimum. Private accommodation is far more appealing compared to university accommodation as it is often cheaper and far less crowded.
Would you rather share a house with a few friends, or a building with 20+ people who you may not have anything in common with?
These are people who have started working in a career, for example, teachers, doctors, nurses, engineers and architects to name but a few. They have usually lived in a shared house before whilst attending university as a student, so they are familiar with the idea of shared accommodation.
It’s unlikely that young professionals will know each other before moving in as they are often arriving in a new city to start their new job. They also don’t spend a huge amount of time at the property as they are out at work all day and are often out at night socialising. Weekends are often spent visiting family and friends too.
It’s quite common for young professionals to only spend a short time living in an HMO whilst they get to know the town or city. Tenancy agreements will typically be for a minimum of 6 months followed by a monthly rolling contract. Some tenants may stay for several years, but it’s important to know that there is a good chance that you may have a high turnover of tenants.
A few common reasons for working professionals staying for less than 2 years include:
1. They find a better job and want to move closer to their new place of work.
2. They decide to move in with their new partner.
3. They have saved a deposit to buy their own home.
These are people who are in full-time employment but have not been to university, so may not have experience with living in a shared house. As a result, they may need some coaching on the living standards that are expected within shared accommodation e.g. keeping noise to a minimum during unsociable hours.
Similar to young professionals, some working people may only stay for a short amount of time and leave for similar reasons, whilst others may decide to stay for longer.
Local Housing Authority
These are tenants who don’t or can’t work, and claim housing benefit. The local authority pays the rent and whether the tenant is in receipt of housing benefit or the new universal credit, it is possible for the rent to be paid directly to the landlord at the tenants request.
Tenants who claim housing benefit will generally spend more time at home, and they are more likely to stay for longer periods.
- The best type of tenants for a specific HMO will be determined by the location and the demand. A property located close to a university will obviously be best suited for students.
- Do not mix tenant types in the same HMO. Students and working people lead very different lifestyles.
Are HMO Properties More Work For Landlords?
Houses of Multiple Occupation require more knowledge and work to ensure the landlord is compliant in adhering too, both national and local, rules and regulations. Some HMO’s accommodate more people than a typical buy-to-let property, so health and safety is paramount.
A landlord who purchases a property with the intent of letting it out as an HMO for the first time, will have considerably more work to do to ensure the property is compliant, compared to a landlord who purchases a property that is already let as an HMO.
Local authorities will have their own criteria for governing HMO properties, so prospective property investors should contact the local council where the property is situated, for guidance before making a purchase.
Once an HMO is let, there may be a number of administrative tasks that would exceed that of a single buy-to-let property. For example, a property which accommodates 6 working people, will have 6 separate tenancy agreements.
It’s also important to know that not all letting agents will manage HMO properties. Therefore, you will need to take the time to research and identify letting agents in the local area who specialise with marketing and letting HMO properties, unless of course, you decide to manage the property yourself.
Who Pays The Bills In An HMO Property?
In most cases, the landlord will pay the utility bills for HMO properties, and the cost of the bills will be factored into the monthly rental costs for the tenants. This practice makes the administration of setting up and paying the bills much easier for everyone involved.
This works particularly well within HMO’s that accommodate tenants on separate tenancy agreements. An HMO which is let to a group of students under one contract may decide, or prefer, to let the tenants control and pay the utility bills themselves.
Do You Need Planning Permission For An HMO?
Under permitted development rights you can convert a house (C3 classification) to an HMO (C4 classification) to accommodate up to 6 tenants, providing an Article 4 hasn’t been introduced to the area by the local authority, which removes the permitted development rights.
Local councils have been given the ability to introduce Article 4 to areas that they deem to be overcrowded.
Properties large enough to accommodate 7 or more tenants, will require planning permission for change of use from a family home to an HMO known as ‘Sui Generis’, which means a ‘class of its own’.
It’s also worth noting, that if planning permission is not required you will still require building regulations if you are installing additional kitchen or bathroom facilities.
The topic of Planning Permission is huge and I am only covering the basics here to give you an overview. As each local authority has their own procedures and criteria, it’s important that you contact them for advice before making your next property investment purchase.
What Is Article 4?
Article 4 is the removal of permitted development rights imposed by local authorities. Councils have been given the power by central government to limit the number of properties used from C3 (Home) to C4 (HMO), to prevent overcrowding as this can cause a strain on public services in certain areas.
Article 4 was introduced in 2012. Some cities have applied it everywhere, others have applied it selectively within designated areas, and others cities haven’t applied it at all.
What does this mean for landlords? Well, you will need to be cautious if you are looking to buy property in an Article 4 area with the intent of letting it as an HMO.
If the property has previously been used as an HMO, you will not require planning permission, but you will need to obtain a Certificate of Lawfulness to prove the property was used as an HMO before Article 4 was introduced.
If the property hasn’t been used as an HMO you will need to submit a planning application to seek permission to convert the property from C3 use to C4 use. The chances of your application being approved could be very slim, which is why it is important to contact the local authority before purchasing the property.
Do You Need An HMO Licence?
Some HMO properties need a licence and some don’t. The local council where the property is situated, will be able to confirm whether a particular property will require a licence or not. If a property requires an HMO licence, the licence holder can either be the landlord or the property manager.
To confirm, it is the property that may require the licence and not the landlord. The landlord is simply the licence holder unless they opt to have the licence registered with the property manager.
If you are considering accommodating 3 or more unrelated people within a property, it is essential that you seek guidance from the local authority to ensure you will be letting the property legally.
If a licence is required, applications can be submitted online and you will receive contact details for someone who will be able to assist you if you have any questions or concerns.
Depending on the local authority, HMO licences will be valid for 1 to 5 years, and the cost can range from anywhere between £550 to £2,000.
What Is A Large HMO?
A large HMO is a property that accommodates 5 or more tenants who form more than 1 household, and who also share a bathroom, toilet and/or kitchen facilities. HMO’s with 7 or more tenants are considered commercial properties for finance and mortgage purposes.
How Many Bathrooms Does An HMO Need?
One bathroom or shower room, one toilet and one wash hand basin must be provided for every 5 tenants within an HMO property. Each bath, shower and wash hand basin must have a constant supply of hot and cold water, with a lockable door from the inside and obscure glass to windows for privacy.
How Many Kitchens Does An HMO Need?
As a general rule, one kitchen with cooking, sanitation and food preparation surfaces must be provided for every 5 tenants in an HMO property. You should seek advice from the local authority to ensure you meet the requirements if you are housing 5 or more unrelated tenants in the same property.
Here is an example of proposed minimum requirements for a shared kitchen facility:
|Kitchen Facility||Standard||Minimum Size|
|Cooker||One cooker for every 5 persons||Minimum of 4 burners, oven and grill. Cookers must not be sited adjacent to exit doors. Splash-back or lift-up cover provided.|
|Sink||Set on a base unit. Provided with a constant and adequate supply of hot and cold water and properly connected to the drainage system. Sink strainer or plug provided.|
A tiled splash-back shall be provided to the drainer.
|Sink minimum size 600mm x 500mm.|
|Worktop||Made of an impervious material. |
A tiled splash-back shall be provided.
|1000mm x 500mm worktop must be provided adjacent to the cooker.|
What Size Do Bedrooms Need To Be In An HMO?
With effect from 1st October 2018, the national minimum space required for bedrooms used as ‘sleeping accommodation’ within an HMO property must be 6.51m2 for single adults (single bedroom), and 10.22m2 for two adults (double bedroom).
In my experience, if you’re considering letting you HMO property to either students, young professionals or working people, you will probably find that their preference will always be a double bedroom. You may struggle to let single bedrooms to these tenant types.
Where To Start If You Want To Invest In HMO Properties
Here are a few things you should do if you are considering investing in a HMO property:
1. Select an area that will be convenient for you to invest in an HMO property. For most people, this will be in an area near to where they live or work.
2. Search online for the local authority and obtain as much information as you can for managing an HMO within the area.
3. Check with the planning department reference Article 4. Ask if it has been applied, and if so, ask when it was introduced.
4. Research the competition. Search online property portals for rooms which are advertised ‘For Let’ in the same area to get a feel for the standards that are currently being provided.
For inspiration, here is a an interview I did with Ash Zuberi from Easy Living Property after he completed a refurbishment of a 3 bedroom house to a 6 bedroom HMO in Swindon: