First HMO advice please

[Giles S]

Hi all,

I have a small portfolio of single let’s, and have now got to the point of feeling a little braver! I have found a 5 bed HMO and weighing up my options.

My initial thoughts are:

1) that it’s not to the standard I would want to live in, which I have always followed but then I don’t want to live in a HMO, so wonder if I need to discount this rule I’ve previously followed.

2) There’s nothing that makes it outstanding, no en-suite, rooms are small to medium (all doubles), Decoration, bathrooms and kitchen are average. So why would this rent if not the best around. Although it’s all full and relatively cheap for the area.

3) It has a HMO licence already and I think is in an article 4 area (I will check with the council next week, unless anyone knows a postcode checking service), but does this mean the licence will be granted in my name?

4) It turns some cash, but not as much as I expected, particularly if I put it with an agent. I could improve this with room increases but not sure how competitive it would then be.

5) All the tenants currently work in hospitality, is this risky given that they have all been furloughed.

6) Am I just looking at a house that’s the same as every other on the street except it has lock on individual rooms and smoke alarms?

 

any advice would be great.

[Mark Rocks]

Hi @giles s

Glad to hear you're thinking of diversifying your portfolio! Some thoughts on your questions;

1) I personally think 'Would I want to live here?' is still quite a good judgement call when looking at properties to invest in. You may not want to live in a HMO, but I'd still look at it as though you *were* planning on living in one. It's also worth thinking how much it might cost for you to bring the rooms up to a level you'd be happy with.

2) This really depends on how much you're hoping to rent the rooms out for. If you're happy to achieve less money for each room, then I don't think you'll have a problem filling the rooms. Not everyone will have the money to pay for more expensive rent, even in HMOs.

3) I'm not too sure on this one, I'm hoping other Hubbers with HMO experience will be able to answer?

4) Again, if you work out your figures and you think you can make it work with the amount of rent you'll be getting, then this shouldn't be a problem. 

5) I'm not sure this is too much of an issue, especially given the roadmap is allowing hospitality to slowly reopen. Also if they're all still living there, then I would assume they've not had any issues paying their rent despite being furloughed this last year.

6)  Again, I'm not sure - would you be able to view any of the other houses on the street?

Personally I think it sounds like there's more negatives than positives with this potential investment. But if you're happy to bring the rooms up to standard a little, then it could potentially work for you in the long run.

[Lee Moffatt]

Hi Giles,

Mark makes some good points so I will not repeat what he has said but hopefully I can plug in some of the gaps.

3. With HMO's a lot of people (including experienced people who work in property) fail to make the distinction between Planning and Licensing. Article 4 relates to planning and the removal of the permitted development right to change of use of a house from a residential home to a HMO between 3 to 6 people.  Licensing is just regulatory standards that the council set out for HMO which must be adhered to in order to obtain a licence.  Providing you meet these standards you will be granted a licence.  Where you need to be careful is if this is an Article 4 area and you have a 5 Bed HMO if you do not have a change of use from a C3 (residential) to a C4 (HMO) you could be in breach of planning.  If you are buying this then you need to endure that planning has been put in place for the change of use or if it is the case that the property has been used as a HMO continuously prior to the introduction of Article 4 then you need to ensure you can get a Certificate of Lawful Use. Without this you could be potentially be putting yourself at risk.

5. If you are taking the property on with tenants in situ there is a risk of them defaulting on the payments if their jobs are at risk however you may want to look at other factors such as the length of their tenancy, general behaviour, values. If they are good tenants you may find they will work with you in the event of redundancy or my choose to leave the property (instead of just try to drag it out without paying rent). You also need to consider other potential tenants as current tenant may leave at some point so what is the rental demand like.  If it is strong then you should have not issue filling the rooms and finding replacement tenants.

6. If buying an existing HMO you want to consider what efforts has the current landlord made to ensure it is compliant with licensing.  If it has been fully kitted out with Grade A fire Alarms Systems, Fire Doors, Closers, Smoke Seals, Emergency Lighting then you are buying a fully compliant HMO so you need to consider the value of that.  If on the other hand it is just a house with sharers with nothing added and is not compliant you need to pay out of your own pocket to ensure compliance when you buy it and so the value here is significantly lower, potentially even a liability.  I would check your local council on their HMO compliance standards so you know what is expected so you can check it against any potential house you are looking to purchase as a HMO.

I hope that helps.