A lot of property investors are turning to HMOs as they consider them a more efficient way to run a rental portfolio. Although there may be more work to do, the opportunity to collect rent from a higher number of tenants and a potential higher rental yield is appealing. What’s more, certain properties and locations are tailor-made for HMOs. For example, a busy student area with large, extendable properties. When it comes to tenants, HMOs are sometimes preferable due to potentially lower rent payments and the opportunity to live with more people.
As landlords have had to deal with increased regulation and financial setbacks in recent years, such as Section 24 and the 3% stamp duty surcharge, many have looked for ways to maximise the potential of their portfolios. Alongside incorporation, one of the most popular strategies has been to convert rental properties into HMOs in order to benefit from higher yields and rental returns.
You’ll need some sort of licence if you own an HMO. If your property is let to five or more tenants from more than one household, some or all of the tenants share toilet, bathroom or kitchen facilities and at least one tenant pays rent, then your property will be considered as a large HMO and will need a licence.
As well as applying for a licence, there are various other compliance measures you’ll need to meet. These include sending a valid gas safety certificate to your local authority each year, installing the relevant smoke alarms and carbon monoxide detectors and having safety certificates for electrical appliances available on request. There are also minimum room sizes for HMOs now so ensure you’re up to date of that.
If your property is not HMO-ready, you may need to make some adjustments to make it suitable for three or more tenants from separate households. Always remember the HMO property needs to be habitable and provide enough space for tenants to live comfortably. As well as your compliance obligations outlined above, the key things you’ll need to consider are space, layout, facilities, furniture and appliances.
If you convert your property into an HMO, it will be visited by your local authority within five years. They will carry out a Housing Health and Safety Rating System (HHSRS) risk assessment to identify any issues. It’s worth noting, however, that the HHSRS was reviewed by the Government in 2019 and therefore its guidelines could be updated in the future. If any unacceptable risks – such as asbestos, carbon monoxide or radiation – are found during the assessment, you will need to address them immediately.