Houses in Multiple Occupation (HMO) are properties which are rented by three or more tenants who aren’t part of the same household. They can be more efficient to manage because you’ll have a single property to manage instead of several and landlords can earn a larger rental income from that property due to the higher number of tenants though this can be influenced by location and property type.
For tenants who opt to live in HMOs will usually benefit from cheaper monthly rent payments and many prefer to live with others. Shared houses are particularly popular among younger renters and students and are often favoured by single professionals making house-shares a viable option for landlords. HMOs are becoming more viable for lower-income tenants as rents continue to soar.
There are a number of steps you’ll need to take if you’re considering converting one of your properties into an HMO which include meeting legal requirements set by the government and respective local authorities, these can include being mindful of any Article 4 Directions (limitations imposed in areas where HMOs are typically quite prevalent, an Article 4 Direction requires landlords to seek planning permission before converting the property into a HMO and is often a result of overcrowding of streets resulting from a large number of HMOs – HMOs can impact parking in the area as more households live in a single property often resulting in more cars needing to park nearby causing congestion), other considerations include:
- Minimum room sizes,
- The Housing Health and Safety Rating System: Harry Albert Lettings & Estates provide a free HHSRS review to landlords with properties in Leicester, and;
- The 125+ (and growing) individual acts of legislation landlords have to be mindful of when letting properties.
Before you start
All HMOs which meet the standard government criteria which are:
- at least 3 tenants live there, forming more than one household
- toilet, bathroom or kitchen facilities are shared
A household consists of either a single person or members of the same family who live together. It includes people who are married or living together and people in same-sex relationships.
Nearly all HMOs require an HMO license, individual rules apply from council to council but those which meet the above criteria require mandatory licensing, meaning they will automatically require a license from the local authority. Fines for not complying are hefty, way into the tens of thousands of pounds. It isn’t worth the risk.
You’ll likely still need a license if some but not all of the criteria apply so make sure you check with your relevant local authority; HMO licenses are valid for five years at a time and you’ll need a license for each HMO you own.
There are rules associated with who can and can’t have a HMO license, some of it balls down to housing health and safety, including valid gas safety certificates, valid safety certificates for electrical appliances (of which, portable appliances – anything which can be unplugged – must be PAC tested) and a valid EPC certificate in place, of which, evidence of compliance can be requested at any time from the local authority. Councils also have different rules and may impose additional criteria so make sure you review the Leicester City Council HMO guidelines in order to make sure you comply.
Depending on how much work needs to be done to the property to convert it, you may also need planning permission to be able to make certain changes. When carrying out these sorts of activities, it’s always wise to make sure you keep a record of all correspondence, applications, and approvals to ensure you’re covered in the future.
The practicalities of converting a property
First, you’ll need to know what your tenants will need and how much space they’ll require, whilst still being mindful of minimum room sizes. It’s also important to think about what level of furniture and appliances you’ll be using whilst being mindful of health and safety and electrical safety laws.
When you’ve converted your house into a HMO, it will be visited by an inspector from the council within five years of the conversion. Their job will be to carry out a Housing Health and Safety Rating System risk assessment and if there are any issues that need to be addressed, you’ll be given a time-frame as to how long you have to complete the works. Some things may have to be actioned immediately. They will also verify the room sizes to make sure they meet the minimum room size requirements so it’s important you make sure your HMO is habitable and safe and provides enough room for tenants to live comfortably.
There will be some instances where you may need to knock walls down and reposition them in order to alter room sizes, these changes should be planned carefully and you’ll do well to employ a professional, especially if the wall you want to remove is supporting the floor above.
Depending on the property, converting it into an HMO is going to be expensive and take some time. You need to make sure you budget properly and don’t expect instant financial returns as it could be some years before you recover your investment.
What else do you need to consider?
One of the key differences between an HMO and a standard rental property is that you could encounter a higher turnover of tenants. Therefore, you should put aside at least two months’ worth of rent each year to cover potential void periods and unexpected costs that may arise whilst you don’t have the rent coming in for certain rooms. You will need to budget even more rent if you’re letting the property to students.
Another crucial factor to remember is that, due to the nature of having more tenants, the property’s likely to come under more stress over the course of a tenancy, this will mean more wear and tear and it may be harder to prove who caused what excessive wear and tear due to the number of tenants living in the property and the potential for them to point fingers at one another. Bathrooms, kitchens, floors and doors will all take a lot more wear and so you need to make sure you’re ready for this and are prepared to respond to all reasonable repair requests with speed and efficiency – as with any other tenancy.
When you do convert the property, it’s easy to take shortcuts and make a decision to “bring it up to standard” as the rent comes in. This can have disastrous consequences in terms of finances, especially if you’re on the receiving end of a hefty fine or worse, a banning order preventing you from being allowed to manage your own properties. Equally important is having enough money to cover any maintenance costs during and after the tenancy.
Converting a rental property to an HMO can be an effective investment and it does require more work and upkeep; managing an HMO is far more involved than managing any other type of tenancy, with perhaps the exception of serviced accommodation when you choose to manage it yourself. Therefore, before jumping straight in, you’ll need to do your research, take your time and carefully compare the additional work and expense against the additional profit you’re likely to make.
If you are struggling with understanding your management obligations or whether converting your property into an HMO is the most viable option, get in touch with Harry Albert Lettings & Estates who will be happy to assist you to explore your options. Their advice is free and you can call them on 0116 321 4970 to ask for advice on converting your rented property into an HMO, they will also point you in the right direction of relevant resources, including a full list of streets impacted by Article 4 Direction.