HMO or two flats?

by Readers Question

5 years ago

HMO or two flats?

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HMO or two flats?

HMO or two flats?I have just purchased a 3 storey property and I’m looking into the best options.

I have worked out all calculations based on turning it into ground floor 1 bed flat and 2 bed flat over top two floors but it has been mentioned that a HMO would be a really good option?

I don’t think the costs to turn the property would be much different and the license would be achievable.

The house layout is basically is front entrance hall, room to right around 4sqm to left kitchen 4sqm leading to stairs and rear door, landing first floor left bedroom 4sqm to right small bedroom 2.5sqm and separate bathroom, 2nd floor two bedrooms 4sqm each

I have not really thought about HMO but have carried works in many.

Options would great fully received.

Thanks

Ian

Comments

Robert M

5 years ago

Do you think you would get planning permisson to split it into two flats?

Jonathan Wilson

5 years ago

Hi Ian

First of all, well done on your purchase. I think the size of the rooms you have stated is probably not correct - a bedroom (or any room) of 4 sqm let alone 2.5 sqm is very small.

I currently have three HMO (24 rooms in total) and am asking myself the same question on the next property purchase. The HMOs give fantastic returns up to 15% gross but come with the extra 'headache' or hassle of rising utility costs, TV licensing, licensing fees, etc, etc. I am beginning to question whether the net return is any better than I could achieve with a house or building divided into flats.

What are the rental figures for the 1 bed and 2 bed flats? Is the HMO going to be a 4 bed? What is the weekly rate for each room in the HMO? Are you letting to students or professionals? Do you have other properties? Will you be self managing?

Happy to answer any further questions you might have.

Cheers

Jonathan

Jonathan Wilson

5 years ago

Hi Ian

One thing I forgot to mention, in some areas you require planning permission for an HMO. I not talking about licensing (that is a separate issue), but in Plymouth a dwelling house is a C3 classification, and an HMO is C4. In Plymouth you now need planning permission to use a residential dwelling as an HMO.

Jonathan

5 years ago

Jonathan

Thanks for the return all is appreciated

The rooms I meant floor space L*B
I have 3 other properties but all managed by a local company (good) I do all the maintainence myself being a tradesman
I am new to this but think I may get better returns on a HMO but and it's a big but as in the area I think all the tenants would be housing benefit (I don't have any problems with this as one of my tenants is on benefits and over the last 3 years has been great) but with a HMO I think if I use a management company it will be a case of just fill it!
Rental return on flats £850 PCM for both and HMO around £1200 but then I have all bills etc
Both will require planning and the HMO is probably cheaper to do but I am a believer in providing good standard accommodation with on going maintainence and then give the tenants something to look after

Thank you in advance

5 years ago

Your room sizes do not make it suitable for HMO, not if they are national regulations, minimum bedroom size for single occupancy in my council is 9sq m, this may be reduced if shared lounge & kitchen are over minimum requirements. I have 2 single bedrooms of 6.5sq m but lounge & kitchen are about double the required size.l am looking to buy more HMO' but 1930's semi's are excluded because of 3rd small bedroom. Any room 2.5sq m is useless.

Mark Alexander

5 years ago

@Ian - might you have meant to say 2.5 metres square as opposed to 2.5 square metres by any chance?

Jonathan Wilson

5 years ago

Ian

So from your figures the gross rent is -

Flats - £10,200 per annum
HMO - £14,400 per annum

For the sake of simplicity, lets say void periods are same and management fees are also the same. With the HMO you will have the additional costs -

Water, gas and electricity - say £2000 per annum
TV licensing (if you supply TV to the communal room - £145

So with a very broad brush the HMO gives about £2000 pa additional income.

The thing that I don't like about my own HMOs is the rising utility costs that I as the landlord have to pay. I realise there are ways to 'cap' the tenants' usage or allowance but in reality there is very little incentive for the tenants to use less water, less gas, or less electricity.

Hope this helps.

5 years ago

three floors
2 offices on ground floor and one flat on ground separate entrance.

two floors and two flats each flat has its own flat door and the only share between two flats is front main door
will this be HMO or not

Naran

Marilyn Solomon

5 years ago

My only addition to this is with regards to letting to DSS in HMOs. You may end up with a number of people, unknown to each other and with nothing in common, unlike other sectors, there will be in your property 24/7 (think wear & tear) and with very little to entertain themselves, at worse, getting on each others nerves. Just a thought. I've let to a single mum on benefit, so I've nothing against DSS, just thinking in terms of your investment.

Mark Alexander

5 years ago

I would suggest two flats as the resale market is far better.

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