Houses in multiple occupation (HMOs)can be an excellent source of income for the buy-to-let landlord. HMOs tend to yield a higher rent than a home let to a single household. However, owners of HMOs have a heavier management burden and must comply with more legal requirements than other residential landlords.
If you are the owners of a HMO, or are considering adding a HMO to your investment portfolio, here are 10 essential tips to help you.
1. Engage with the local housing authority
Some HMOs need a licence, either because they are large HMOs affected by mandatory licensing or because the local housing authority has introduced additional licensing for certain types of smaller HMO. Check what the rules are in your area.
Also check what standards, rules and regulations apply locally. Each local housing authority will have requirements as to safety, room sizes and facilities.
If you are converting a family home into a HMO, check whether planning permission is required. Generally, no planning permission is needed for a HMO housing 3-6 residents but larger HMOs require a specific planning permission. Take advice from the local authority planning department at an early stage,
2. Obtain or renew your HMO licence
If a licence is required, be sure to obtain one before letting any rooms in your HMO. The local housing authority will carry out an inspection before granting (or refusing to grant) a licence. A fee will be payable. Licences usually last 5 years.
A criminal offence is committed if a landlord does not have a licence for a HMO that should have a licence. A fine of up to £20,000 can be imposed. It is also an offence to allow overcrowding or to breach a condition of the licence.
3. Check that your mortgage permits HMO use
Not all buy-to-let mortgage products are suitable for HMOs. Some standard buy-to-let mortgages will allow “small HMO” use, i.e. 3 or 4 tenants, but owners of larger HMOs will need a specific HMO mortgage product.
Shop around and consider using a broker to source the most suitable product. Lenders tend to offer the best products to experienced property investors.
4. Obtain specialist insurance
Insurance is essential to protect your investment but many insurers do not offer policies for HMOs as they are perceived to be higher risk. As with mortgage products, landlords need to shop around or use a broker.
Ensure that your insurance covers the buildings, any landlord’s contents and loss of rent if the property is damaged or destroyed.
5. Attend to safety & maintenance
HMO landlords have various duties under The Management of Houses in Multiple Occupation (England) Regulations 2006. These are listed below. Landlords should ensure that the property is up to standard before allowing any tenants to occupy.
• Provide the landlord’s contact details to the occupiers and displaying them in a prominent place in the property
• Take fire safety and other safety measures
• Ensure a supply of water and drainage
• Maintain a supply of gas and electricity and testing gas appliances annually and electrical installations every 5 years
• Maintain common parts, fixtures, fittings and appliances
• Make sure living accommodation is clean at the start of a tenancy
• Provide waste disposal facilities.
6. Monitor safety & maintenance
Landlords need to carry out regular inspections of the HMO to keep the safety and maintenance issues above under review. If tenants report faults, the landlord should respond promptly.
7. Choose tenants carefully
All landlords need to take care when taking on a new tenant. HMO landlords need to be particularly careful. In many cases, HMO tenants are young professionals looking for economical accommodation in a convenient location. However, HMOs can also attract unreliable tenants and tenants with financial problems.
As well as checking on reliability and creditworthiness, Landlords need to consider whether a new tenant will fit in with the other tenants in the HMO. Landlords should seek references and do financial checks. Click here to see our Simply-Docs template reference request letters.
8. Have a written tenancy agreement
Having a written tenancy agreement will ensure that both landlord and tenant know what to expect and will reduce the scope for disagreements during or at the end of the tenancy.
Click here to see the Simply-Docs range of bedsit agreements and other assured shorthold tenancy agreements and here to see our student letting agreements.
9. Keep detailed records
Make sure you keep a written records of any inspections, correspondence and conversations with tenants. This will provide evidence of your actions in the case of a future dispute.
Also keep detailed financial records. These will be essential when it comes to filling in your tax return.
10. Connect and keep up to date
Connect with other local HMO landlords or join an online forum to learn from others and share your experiences of being a HMO landlord. Make sure you know about any planned changes to HMO legislation so you are well prepared.
How can Simply-Docs help?
Simply-Docs has a huge range of template letters, forms and documents in our Residential Landlords folder, including tenancy agreements for HMO and non-HMO properties. Our documents are customisable and easy to edit.
Our new HMOs and Licensing documents help HMO landlords to comply with the HMO Management Regulations.
For more information about our services, please do not hesitate to contact one of our expert team today.