HOUSE IN MULTIPLE OCCUPATION

Interested in diving into the House in Multiple Occupations (HMO) market and discovering property deals that offer excellent rental returns? We’re here to assist you with that.

At KIR Property Group, we specialise in sourcing properties nationwide, ensuring you can access the most lucrative opportunities, wherever you're looking. With years of experience in property investment, our team is well-versed in HMO regulations, licensing requirements, and maximizing profitability.

Houses in Multiple Occupation (HMOs) can be incredibly profitable investment opportunities for landlords, but they require careful planning and execution. This guide will walk you through everything you need to know in a step-by-step process, helping you confidently navigate the journey of becoming an HMO investor.

Licensing, Planning & Legal Considerations

Before you dive into HMO investment, it’s essential to understand the legal requirements. HMOs are governed by specific regulations designed to protect tenants and ensure properties are managed properly. Non-compliance can lead to hefty fines, so this step is crucial for a successful investment journey.

Licensing
HMOs require a license from the local council, with the type of license depending on the size and occupancy of the property:

  • Mandatory HMO Licensing: For properties with five or more tenants from two or more households.

  • Additional Licensing: Some councils apply licensing to smaller HMOs as well.

  • Selective Licensing: In certain areas, all rental properties, including non-HMOs, require a license.

The application process includes ensuring the property meets safety standards, providing an acceptable tenancy agreement, and proving that you're a fit and proper landlord.

Planning Classifications
Understanding planning classifications is key to determining whether your property can legally be used as an HMO:

  • Class C3 (Residential): For family homes or single households.

  • Class C4 (Small HMOs): For properties housing 3 to 6 unrelated tenants.

  • Sui Generis: For larger HMOs with 7 or more tenants.

If your property doesn’t already fit into Class C4 or Sui Generis, you may need to apply for a change of use.

Article 4 Directions
Some councils implement Article 4 directions, removing permitted development rights. This means you need planning permission to convert a property into an HMO, even for smaller ones (Class C4). These directions are usually in areas with a high concentration of HMOs, like university towns such as Leeds, Manchester, and Birmingham.

Conversion Requirements
Converting a property into an HMO goes beyond adding locks to doors. You must meet various safety and functional standards:

  • Fire safety

  • Layout and room sizes

  • Facilities

  • Utilities and services

Fire safety is one of the most critical areas, including requirements for hardwired smoke alarms in all bedrooms and communal areas, heat detectors in kitchens, and fire doors with self-closing mechanisms.

Regional & Local HMO Rules

When investing in an HMO, it’s important to understand the specific regulations in your chosen area. Local councils often have their own rules for HMOs, impacting everything from licensing to planning restrictions and demand for HMOs.

While mandatory licensing applies to larger HMOs across the UK, many councils have additional schemes for smaller HMOs. These schemes ensure landlords meet local standards for safety, cleanliness, and tenant welfare.

For example, Birmingham City Council introduced a selective licensing scheme on 5th June 2023, requiring all privately rented properties in specific wards to obtain a license, regardless of the number of tenants.

Insurance and Management

Managing an HMO involves complexities beyond a standard Buy-to-Let property. From obtaining specialized insurance to daily management, this stage is crucial to protect your investment and keep tenants satisfied.

HMO Insurance: Why It's Essential
Standard landlord insurance policies often don’t cover the unique risks associated with HMOs. HMO-specific insurance provides coverage tailored for shared housing. Key features include:

  • Property Damage: Covers damage from tenants, accidents, or natural events.

  • Liability Cover: Protects you if someone is injured on your property.

  • Loss of Rent: Compensates for lost rental income due to insured events like fire or flood.

  • Accidental & Malicious Damage: Covers damage caused by tenants.

  • Legal Expenses: Helps with legal fees for disputes or eviction processes.

Make sure to select an insurance provider that explicitly covers HMOs, as insurers may have additional requirements for multi-occupancy properties.

Property Management Options
Managing an HMO comes with unique challenges, like coordinating multiple tenants, maintaining communal spaces, and ensuring compliance with legal standards. You have two options for property management: self-managing or hiring a professional property manager.

  • Managing your HMO yourself can help reduce costs, but it demands a considerable amount of time and effort. Your responsibilities will include:

    • Collecting rent from several tenants.

    • Overseeing repairs and maintenance for both communal and private spaces.

    • Ensuring the property meets safety standards and complies with licensing regulations.

    • Dealing with tenant disputes and managing contracts.

    Self-management is best suited for experienced landlords who are based locally and can promptly address tenant concerns.

  • Hiring a property management company can alleviate the stress of owning an HMO. Their services typically cover:

    • Tenant sourcing & vetting: Ensuring reliable tenants occupy your property.

    • Rent collection & arrears management: Simplifying rent collection and handling late payments.

    • Maintenance & repairs: Overseeing routine maintenance and emergency repairs.

    • Legal compliance: Keeping the property in line with licensing and safety regulations.

    While management fees generally range from 8-15% of rental income, the convenience and time saved often make it worthwhile, especially for landlords with multiple HMOs or those who are located farther away.

Understanding the Profitability of HMOs

Houses in Multiple Occupation (HMOs) are widely seen as one of the most lucrative property investment strategies. By renting out individual rooms, landlords can achieve significantly higher rental yields compared to traditional single-let properties. However, with the potential for higher income comes the need to manage additional costs and responsibilities.

The primary advantage of HMOs is their ability to generate higher rental income by renting each room separately, thus creating multiple income streams from a single property.

For instance, a 3-bedroom house converted into a 5-bedroom HMO can generate income from five tenants, potentially doubling or even tripling the income when compared to renting the property to a single family.

Invest in HMOs

Once you’ve gained a solid understanding of how to invest in HMOs, the next step is taking action and starting your journey to becoming a successful HMO investor! While finding the right HMO property can be time-consuming and complex, particularly if you’re new to the market, there’s a more efficient way to streamline the process.

In England and Wales, the most straightforward and hassle-free way to secure your ideal HMO property is to let us do the sourcing for you. At KIR Property Group, we specialize in locating high-potential HMO investments tailored to your specific goals. Whether you’re after an existing HMO or a property with conversion potential, our expert team is ready to help you find the perfect match.

Investing in HMOs doesn’t have to be overwhelming. With KIR Property Group, you’ll have a trusted partner who will simplify the process and guide you toward achieving your investment goals. Let us handle the hard work so you can focus on growing your property portfolio.