Experienced landlord Angus Ryan explains why landlords should not be afraid to invest in HMOs and also inform their local council if they are operating a House in Multiple Occupation.
Indeed he has found that they are very helpful and want to help landlords improve housing standards for tenants. In this article he also tells of his experience of several of his HMOs. This is just one tip featured in his newly acclaimed book “Top 21 Worst Mistakes made by Property Landlords and How to Avoid Them”.
As well as licensable HMOs (which are usually 3 storey properties with 5 or more tenants) there are non-licensable HMOs which councils are equally interested in but they do not require so much paperwork. HMOs can be very lucrative and to avoid having to get a license I have deliberately bought properties with only two floors and five tenants.
The benefits of letting on a Multi Occupancy basis?
- Higher return on your investment.
- Rental yield can be as high as 75% greater than single tenancy occupancy.
- Less Risk. Rental income is paid by individual tenants not reliant on just one ‘breadwinner’
- Less void periods. Multi Occupancy properties run at about 90% through the year.
- More control over your property. Landlord has access to property at all times.
There is strong demand for this type of accommodation which will continue into the foreseeable future.
There is a general wide definition of the regulations which state that the following are HMOs:
- Properties (Flats or houses) inhabited by 3 or more people who are not a household and share kitchen and bathroom facilities. A household is defined as parents, grandparents, children, aunts, uncles and cousins.
- Student accommodation during term time
- A building converted into flats pre June 1992 which does not comply with the Building Regulations 1991, has not been subsequently up-dated to the relevant fire safety standard and where a third or more of the properties are rented on short term tenancies.
The landlord may not have to carry out any action to ensure compliance. However you need to have an electrical inspection carried out every five years. The above properties like all private dwellings must comply with the Housing Health and Safety Rating System (“HHSRS”) which is the new statistical means of measuring hazards and risk of injury at a property. This system applies to all properties but those falling into the above category are subject to inspection by the environmental health officer.
What extra responsibilities does the landlord of an HMO have?
The landlord’s most important responsibilities are to ensure that:
- proper fire safety measures are in place
- the property is not overcrowded
- there are adequate cooking and washing facilities
- communal areas and shared facilities are clean and in good repair
- There are enough rubbish bins.
The fire safety measures would normally include proper means of escape from the property in case of fire. This may include half hour resistant fire doors and a fire alarm and detection system which will usually be a lower specification than for Licensed HMOs. As the landlord of the property you are required to ensure that a fire risk assessment is carried out by a competent person. Your local Environmental Housing Officer can be contacted to give you appropriate guidance.
Check with your local council as sometimes grants are available to help you improve standards for fire safety, amenity and energy efficiency work.
An inspector will arrange to come round to your property and assess what you need to do to get it up to the decent homes standard and HHSRS. Don’t be frightened by this as you may be entitled to a HMO renovation grant including up to £1,000 for energy efficiency work. In my area grants can be given for 60% for fire work such as an alarm system and fire doors and 40% for amenities such as a new sink.
The proportion of the improvements that you pay for can be offset against your rental income. Ignoring requests to get your Licensable HMO up to the required standards can land you in big trouble. There are enforcement procedures and you can be taken to court and fined up to £20,000 and the tenants can apply to the court to reclaim their rent from you (rent repayment order) whilst the property is not Licensable. So be warned! Unless your Licensable HMO is licensed then any Section 21 notice will be invalid and you will not be able to evict a tenant.
I had a licensable HMO and I invited the Council to assess the property and they wanted me to extend one of the bedrooms as it did not comply with the minimum personal space requirements which were 90 sq ft for a single room and 110 sq ft for a double. This room also housed the hot water tank and boiler controls.
HMO’s include communal areas with furnishings. Any electrical appliances will need Portable Appliance Testing which usually costs £10 per item e.g. TV, Kettle, Microwave, washing machine. National Landlord Association does courses for PAT so you can learn and do it yourself! Any soft furnishings will need to be fireproof and have the kite mark. Items need to be tested regularly e.g. at least once every two years.
Unless you have a Digital thermostat controller which you can lock then I would recommend padlocks on the boiler controls so that the heating is not on 24 hours a day. The hot water is available all the time but heating is usually on for about 8 hours a day extended to up to 12 hours per day in winter. The rent for HMO’s is all inclusive. This includes all bills, gas, electric, water, council tax, internet, TV licence (except their individual room).
Broadband is a must to attract tenants in an HMO. The phone line rental plus broadband costs about £20 per month. HMO’s require more intensive management as more tenants move in and out and more things can go wrong. I employ trustworthy cleaners and gardeners and pay them £11-12 per hour to keep the communal areas clean and the garden lawns cut and free of weeds. They also report back to me if anything is wrong or needs maintenance.
I would highly recommend buying an HMO to add to your portfolio. It accounts for a large portion of my profit every month and if they are run efficiently they are very lucrative. I think this type of housing will become even more popular in the future and you could create a great income by just running an HMO business in your local town/city. It is a no brainer for tenants to live in furnished accommodation with no bills to pay and the chance to meet new friends and being close to amenities.
It is worth noting that Local Authorities have the powers to extend licensing to HMOs with fewer than three levels or five tenants if they think there is a need e.g. anti social behavior in a local area. To find out if your HMO may be in an area where extended licensing is being applied then contacts your council’s Private Sector Housing Officer or Environmental Health Department.
Remember even if your HMO is not licensable you will still need to install a fire safety system and fire doors. Check with LACORS/DASH for guidance and your local council and fire service.
This is just one tip but the great news is that you can benefit from a further 20 Top Tips by checking out www.landlordpropertymistakes.co.uk. This book shows you how to avoid the biggest blunders and includes a special property tax saving factsheet. This is amazing value so hurry and pick up your copy now.
Enjoy the book, Angus Ryan