Houses of Multiple Occupancy (HMOs) can be a lucrative source of income, and buy-to-let landlords can earn three times as much money letting out separate rooms in a shared house compared to letting a whole property to one family. However, HMOs are heavily regulated compared to other types of rental properties and failing to comply with the rules can lead to a big fine.
In this article we’ll outline the eight most important tips for first time HMO landlords.
1. Get to Grips with the Rules of your Local Housing Authority
Different local housing authorities have different rules when it comes to HMOs, so it’s crucial to know the legislation. A large HMO is classed as a property let to five or more people from two or more households who have shared access to facilities such as a kitchen and bathroom.
All large HMOs must be licensed in England and Wales, but in some areas Local Housing Authorities (LHA) have introduced additional licensing for certain types of smaller HMOs, so you must check the rules in your area.
2. Obtain an HMO Licence
If a licence is required, you must obtain one before letting any of the rooms in your HMO. Letting a licensable HMO without a license is an offence and can result in very large fines, usually between £10,000 – £30,000.
When you apply for a license, the LHA will carry out an inspection before granting it. The cost of an HMO license varies a lot, depending on where your HMO is based, but it will usually be over £300 and can be over £1,000 in some areas of London. Once you have it, it will last five years before it needs to be renewed.
3. Get a Mortgage that Allows HMO Use
Not all buy-to-let mortgages are suitable for HMOs, so it’s vital to check with your mortgage provider before applying for a license. Or, if you know you’re planning on letting a property as an HMO, make sure you get a mortgage that allows this first. Some standard buy-to-let mortgages allow HMO use for small properties (three or four tenants), but a large HMO needs a specific mortgage product.
4. Get the Right Insurance
Houses of multiple occupancy must have specialist insurance cover, so don’t rely on the usual buy-to-let insurance deals and hope that you are covered. HMOs are perceived to be higher risk, so some providers won’t cover them, but there are still plenty of deals available. Make sure your insurance covers the building itself, the contents and any loss of rent if the property is damaged or destroyed. You also need to beware of tenants subletting rooms in your property, as this can render your insurance void.
5. Carry Out Your Duties as a HMO Landlord
The Management of Houses in Multiple Occupation (England) Regulations 2006 lay out the various rules and regulations that HMO landlords must abide by. These stipulate that landlords must:
- Follow strict fire safety rules specifically for HMOs
- Provide the landlord’s contact details to the occupiers and display them prominently in the property
- Maintain a supply of gas and electricity
- Ensure gas appliances are tested annually and electrical appliances every five years
- Make sure the property is clean and up to standard before tenants move in
- Maintain common areas, fixtures, fittings and appliances
- Provide waste disposal facilities
Landlords must carry out regular inspections of their HMO to ensure that safety and maintenance issues are kept under review. If tenants report faults or issues, landlords must respond promptly.
6. Find the Right Tenants
Having a group of people who gel and create a harmonious household works in your favour as a landlord, as it saves you having to deal with conflicts or issues. Look for tenants who have similar lifestyles and living patterns. For example, a group of lively students who stay up late won’t be a good match for someone who works morning shifts and needs to go to sleep early.
A group of people who enjoy living together are likely to have fewer disputes and you will have a slower turnover of tenants, which means less periods of time when rooms are empty. If you are happy with your existing tenants it can be a good idea to allow them a say when screening prospective new tenants.
7. Have a Written Tenancy Agreement
It should go without saying that you must have a written tenancy agreement in place with each person living in your property. Having room-only agreements allows you as landlord to have regular access to the property as you retain control over the common parts of the property, which isn’t the case with joint tenancies. Assured shorthold tenancy agreements usually run for 12 months with a six month fixed period during which neither party can end the agreement, unless the rules of the tenancy have been breached.
8. Keep Detailed Records
Written records should be kept of correspondence and conversations with tenants, as well as all inspections that you do of the property. You should also keep records of any maintenance that is carried out, and the correspondence you have with the tradespeople doing the work. This type of evidence can be very useful if any disputes arise.
It is also important to have detailed financial records, including all incomings and outgoings related to the property. Whilst it isn’t necessary to operate your HMO as a limited company, it’s a good idea to open a separate business bank account for all finances related to it.
Running an HMO requires planning and careful management, as there are various pitfalls that can lead to large fines. However, if you do your research and know the rules and regulations that apply, carry out your duties properly and choose the right tenants, it can be a lucrative and rewarding way to rent out your property.
If you need further information, get in touch and one of our expert letting agents will be happy to help.