Convert to HMO or not?

by Readers Question

13:26 PM, 2nd February 2021
About 3 months ago

Convert to HMO or not?

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Convert to HMO or not?

I have a reasonably good-sized mid-terrace property coming vacant. In the past, I let this to families.

The ground floor of the house has a large front room, large mid-room and a large kitchen. Upstairs there are two medium-sized bedrooms, good-sized box room (8ft x 6ft) and bathroom, there is also a loft room with a window which in the past has been used as a bedroom.

I am wondering whether to convert this house into an HMO with a room in the front room, Mid-room and kitchen as communal areas and two or three rooms upstairs. If I decide to go ahead, would I need to inform my lender?

Any thought or comments would be appreciated.

Mike

Comments

Ian Narbeth

11:24 AM, 3rd February 2021
About 3 months ago

Reply to the comment left by david porter at 03/02/2021 - 11:20
The emergency will pass and it will take 2 to 4 months to get the house ready as an HMO by which time much of the country will be vaccinated.
About 3 million people live in HMOs in the UK. HMOs provide affordable accommodation and allow individuals to budget as they don't get nasty surprises and don't have to deal with bills for utilities.

Mike

12:14 PM, 3rd February 2021
About 3 months ago

Hi Mike, I am the other Mike, I am from London, there is nothing wrong with having an HMO, many people cannot afford a whole house and in turn they rent a house and start subletting, it is therefore entirely your choice if you think running it as an HMO may give you a little more , but you have to remember that apart from HMO rules on fire doors, fire alarm, licensing, you also have to pay council tax, all the utility bills, and heating which you cannot control, so you risk losing if your tenants start to take long hot water showers and or take a daily hot water bath , you will not be able to dictate them how many minutes they can spend in a shower and how many showers they can have in a day!

So these are the pitfalls of running an HMO. I have decent tenants, when they don't follow my rules of engagement such as reasonable use of amenities, I clearly put it down in my agreement that their rent is subject to reasonable use of all amenities, and if they abuse my heating, or use excessive water, the rent will go up to cover this, as well as if the energy prices go up, their rent will also go up. In the long run it is not worth the hassle. So think very carefully, a slightly higher yield in rent will soon vanish when tenants start abusing privileges allowed within their rent.

Also whenever something goes wrong, like say the toilet pan is broken, none of the occupants will own to the damage, so you would end up paying to put it right at your expense because no one knows who broke it. Since then I have started to believe in ghosts.

Mike

12:23 PM, 3rd February 2021
About 3 months ago

As for Paul shears comments, indeed there are thousands of people who cannot afford to rent a whole house, if they do, they will start subletting to others and claim they are family members, like cousins, uncle and aunts, you name it and you cannot prove whether they are truly related, so they could lie to you and rent a house and run it as an illegal HMO, in which if the landlord may get caught through no fault of his. Yes there is a huge demand for such properties, it is not a question of whether anyone would want to live like that, they have no other choice.

GraemeG

12:29 PM, 3rd February 2021
About 3 months ago

Reply to the comment left by Ian Narbeth at 03/02/2021 - 11:08
I agree. I have converted two properties to HMO and one new build all in the range of 6 to 8 bedrooms each. HMOs can be valuable to tenants, the local community and financially viable. That does not imply that all will be. I put an immense amount of thought, planning and research into every property investment and recommend that anyone considering an HMO business does the same. Anyone that is considering HMO for the first time, find some people who have real depth of experience before committing any significant time or money. I can't comment on this specific situation, there are other essential facts that would need to be known. Anyone saying "do" or "don't" on this thread are making assumptions which may be incorrect. Due diligence is the key to success.

GraemeG

12:34 PM, 3rd February 2021
About 3 months ago

Reply to the comment left by Mike at 03/02/2021 - 12:23I have tenants in our HMOs that have a preference for living in an HMO vs single let (the HMOs are high quality) and their decision is not based on affordability. One thing they value is the HMO community. This value has been amplified during lockdown times as people were not able to network outside of their co-tenants. I have one tenant who initially planned to stay in the HMO for six months and then move onto a single let. This tenant has a change of mind, is staying in the HMO and it's the community of people that is the reason for the change. It's incorrect to assume that HMO living is a compromise based on an affordability constraint.

Di Driscoll

14:36 PM, 3rd February 2021
About 3 months ago

I have a house used as a 4 person HMO in North Bristol. They chose to live in shared accommodation and did not come together as a group of friends. This means I feel that if one wants to grow cannabis or have an illegal rave or have others to live there I will know about it. They aren't perfect but are better as far as the local community are concerned than the students in houses either side of them who have loud parties and pour out into the streets puking at all hours of the morning. We have 4 bedrooms, 2 bathrooms and a 'cloakroom' and a shared living area. Bills are included and have gone up since they are working from home, but at least they are working. In my mind at the moment there's less risk of having no income than with a family with one wage earner.

colette

15:27 PM, 3rd February 2021
About 3 months ago

Having sold the family home I am about to hand over £500k to my only child in Leeds with the advice he look into purchasing a current HMO or refurbishing one to ensure he has a separate source of income in the future. I expect him to keep it to the same standards as my other properties which are all family lets. I am currently looking into this in the Leeds area and any help/advice in respect of that region would be appreciated. It would not be for student use. As for the snarky comments some have made about HMO's and standards of living my son, along with many of his friends and children of my friends have all at one time lodged or are still lodging in such properties and none have ever complained about them or found them to be hellpits and several have said they have been a lifesaver during the lockdowns. They are an essential requirement for a section of the population, esp in cities. I will be posting another query elsewhere in respect of some other properties.

Jessie Jones

11:47 AM, 6th February 2021
About 2 months ago

I think that we all have different impressions when we think of an HMO.
There are comfortable HMO's with plenty of space and bathrooms, where people choose to live to enable them to work in a particular location where house prices are high.
And then there are HMO's which are inhabited by scruffy, pot-smoking, trouble causing, noisy music at 4am making, youths.
The former can easily become the latter if you have just one person who behaves this way as the quieter residents will soon leave.
The pandemic will indeed soon be over. But there is a good chance (in my opinion) that students will increasingly study online, away from university, and people will work from home well into the future as employers recognise the benefits.
There is anecdotal evidence that people are looking for larger accommodation, with room to work from home.
Of course, very few additional homes are being built, so there will be a continued need for every single room that can be made available. But whether or not you would want the residents that you might end up with. . . . well, it's not an road I am going to follow.

GraemeG

12:31 PM, 6th February 2021
About 2 months ago

Reply to the comment left by Jessie Jones at 06/02/2021 - 11:47
The trend of more people working from home is likely. I design my HMO bedrooms with custom furniture that includes workspace for using a computer with two large screens. I personally lived and worked in a property with this design for 5 months, it works well. I also install high grade managed broadband to give tenants reliability of service.

Simon Misiewicz

13:01 PM, 6th February 2021
About 2 months ago

There is a potential to reduce the VAT from 20% to 5% if you convert a single let property into a licenced HMO.

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