#hmo conversion

Houses of Multiple Occupancy (HMOs) can be a good way to make money, and buy-to-let landlords can make three times as much money by renting out separate rooms in a shared house as they can by renting the whole house to one family. But compared to other types of rental properties, HMOs are heavily regulated, and not following the rules can lead to a big fine.

In this article, we'll go over the eight most important tips for HMO landlords who have never done this before.

1. Get to know your local housing authority's rules

When it comes to HMOs, different housing authorities have different rules, so it's important to know the law. A large HMO is a place where five or more people from two or more households live together and share facilities like a kitchen and bathroom.

In England, all large HMOs must have a license. However, in some places, local housing authorities (LHA) have added licensing for some smaller HMOs, so you should check the rules in your area.

2. Get an HMO license.

If you need a license, you have to get one before you can rent out any of the rooms in your HMO. Letting an HMO that needs a license but doesn't have one is illegal and can lead to fines that are usually between £10,000 and £30,000.

Before giving you a license, the LHA will do an inspection when you ask for one. The price of HMO licenses varies a lot depending on where your HMO is located, but it is usually more than £300, and in some parts of London it can be more than £1,000. After you get it, it will last for five years before you have to get it again.

3. Get a loan that lets you use an HMO.

Not all buy-to-let mortgages are good for HMOs, so it's important to check with your mortgage provider before applying for a license. Or, if you know you want to rent out a house as an HMO, make sure you first get a mortgage that lets you do that. Some standard buy-to-let mortgages let HMOs with three or four tenants use the property, but a large HMO needs a different mortgage product.

4. Ensure that you have adequate insurance.

HMOs need special insurance, so don't just buy the usual buy-to-let insurance and hope you're covered. Some providers won't cover HMOs because they are thought to be riskier, but there are still a lot of good deals. Make sure your insurance covers the building, its contents, and any rent you lose if the property is damaged or destroyed. You should also watch out for tenants who rent out rooms in your home to other people. This could make your insurance useless.

5. Do what you need to do as a landlord of an HMO.

The Management of Houses in Multiple Occupation (England) Regulations 2006 spells out the rules and regulations that HMO landlords must follow. These say that landlords must do the following:

Follow strict rules about fire safety made just for HMOs.

Give the tenants the landlord's contact information and put it in a prominent place on the property.

Keep the gas and electricity coming in.

Make sure to test gas appliances once a year and electric ones every five years.

Before tenants move in, make sure the place is clean.

Keep the common areas, furniture, fixtures, and appliances in good shape.

Provide waste disposal facilities.

Landlords must check on their HMO on a regular basis to make sure that safety and maintenance issues are being looked at. If a tenant points out a problem, the landlord needs to fix it right away.

6. Look for qualified tenants.

As a landlord, it helps to have a group of people who get along and make the house run smoothly. This keeps you from having to deal with problems or fights. Look for tenants with similar habits and ways of living. For example, a group of lively students who stay up late won't be a good fit for someone who works morning shifts and needs to go to sleep early.

People who like living together are less likely to fight, and they are also less likely to move out, which means there will be less time when rooms are empty. If you're happy with your current renters, it might be a good idea to let them have a say in who you rent to next.

7. Make sure you have a written Agreement.

Everyone who lives in your HMO should know that you must have a written tenancy agreement with them. With room-only agreements, you have regular access to the property as the landlord, and you still have control over the common areas, which you don't have with joint tenancies. Most assured short hold tenancy agreements last for one year and have a fixed period of six months during which neither party can break the agreement unless the rules of the tenancy have been broken.

8. Keep Records in Detailed

All correspondence and conversations with tenants, as well as all inspections of the property, should be written down. You should also keep track of any repairs that are done and any communication you have with the people doing the work. This kind of proof can be very helpful if there is a fight.

Also, it's important to keep detailed financial records, including all the money that comes in and goes out of the property. Even though you don't have to run your HMO as a limited company, it's a good idea to open a separate business bank account for all of its finances.

Planning and careful management are needed to run an HMO because there are many things that can go wrong and lead to large fines. But if you do your research, know the rules and regulations, do your job right, and pick the right tenants, it can be a good way to rent out your property and make money.

Houses with more than one family living in them can be a good way for landlords to make money. Most of the time, the rental income from an HMO is higher than that from a normal family home, but they are a little harder to run.

In 2019, Precise Mortgages did research that showed that the average rental yield was around 6.3%, which was higher than the average buy-to-let yield of 5.53%. So, professional landlords who want a higher and more stable gross rental income like HMOs. But it's important to note that HMO management can take more time because there is more paperwork to deal with. In this article, we'll give you a general idea of how landlords can take care of HMOs.

What are HMOs?

In England and Wales, an HMO is a place where three or more people from two or more different households live together and share things like a kitchen and a bathroom. In Scotland, a house with three unrelated tenants who share a kitchen, bathroom, or toilet is called an HMO. Some people call HMOs "house shares."

Before 2018, a house had to have at least three stories to be considered an HMO. This rule was changed for landlords in England and Wales.

The Benefits of HMOs

The main benefit of HMOs is that they make more money from rent, but they are also more popular because they are cheaper than single-family homes.

Renters between the ages of 25 and 34 now account for 33% of all renters. Most people in this group will rent a room in an HMO. Also, HMOs are popular with students and workers who need short-term housing. In towns and cities, where many young people can't afford to rent a flat on their own, the need for HMOs is often much higher.

Because of this, HMO landlords usually have less time when they don't have any tenants. Even if a room isn't rented for a few weeks, you'll still get money from the other rooms.

Using the same reasoning, HMO landlords are safer from problems caused by late rent payments.

The Problems with HMOs

Not every house can be turned into a house of multiple occupations (HMO). This type of rental model works best for older, large Victorian homes with more than one floor and bigger rooms. The rents on these properties are higher, but the maintenance costs are usually higher because the buildings are older. 

If you are on a tight budget, the lack of suitable properties may make it harder to find one at a reasonable price.

When getting into the HMO business, landlords need to have deeper pockets. Changing a family home into an HMO is expensive, or at least it is if you follow the planning rules. Most HMOs are rented fully furnished, so you will need to buy furniture for your bedroom and for the common areas, like a couch, dining table, and chairs.

The cost of running an HMO is higher. You might want to set aside money in your budget for a regular cleaner for the common areas and a gardener, if there is one, to keep the property in good shape.

It's harder to sell an HMO because the only people who would buy it are other landlords of HMOs. Most people won't buy a house that has been turned into an HMO because it would be too expensive to turn it back into a family home. This means that the growth of capital can be slowed down.

It's not as easy to get a mortgage for an HMO, but there are lenders out there if you look around. Aldermore and Gatehouse are the two that offer the most. Many deals can only be found through brokers, but the Leeds Building Society works directly with landlords. 

In 2016, Leeds Building Society started offering fixed-rate HMO mortgages to attract landlords whose properties were reclassified as HMOs. It looks at the rental income for smaller HMOs and the projected rental income for larger HMOs in relation to the value of the property. There are also HMO mortgages from Bath Building Society.

Among the products available now are:

Bath BS has agreed to a five-year deal with a fixed rate of 3.89 percent.

Leeds BS has a two-year fixed-rate deal with a rate of 2.59 percent.