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HMO management – what you need to know

If you are interested in Houses in Multiple Occupation (HMO) management and want to know more, then this article is for you.

Essentially, HMO properties offer lots of advantages which makes them an appealing prospect for most landlords.

One of the big issues is that HMOs tend to deliver better profits than other types of rental properties.

However, the prospect of earning more from a HMO property investment needs to be balanced with an understanding that tenants have more protection.

What is a HMO property?

So, what is a HMO property? Not everyone that is new to property investment will appreciate that the term ‘HMO’ means houses in multiple occupation.

This is a rented house that will be shared by several people, also known as households, though they can consist of just one person, cohabiting couples or a family.

You also need to appreciate that there is more than one type of HMO property:

  • A flat or house that is shared by at least three people from two different households but with a shared communal area
  • A HMO where the landlord lives in it as the owner-occupier but with at least two tenants and some shared areas.
  • Some student accommodation will be classed as a HMO under the Housing Act 2004. This will be a private rented property that is shared by students with each of them being treated as a separate household and having exclusive use of the rental property and this will be seen as a HMO.
  • A building, or a part of it, that has been converted into self-contained units but it does not meet the requirements of the Building Regulations Act 1991, and with more the housing units being occupied by a short term tenancy may also be referred to as a HMO – specifically a Section 257 HMO.

For a property to be considered as a HMO

While this appears to be a complicated issue when it comes to the legal definition, it may help to understand that for a property to be considered as a HMO, it must:

  • Be shared by at least two people.
  • Be the tenant’s main residence
  • Have tenants paying rent.

One of the most important issues for anybody thinking about investing in property and HMO property management is that the people living there will not be related and will not be sharing a bathroom, toilet or kitchen facilities.

Also, they will have separate tenancy agreements for their own housing unit.

The legal responsibilities of a HMO landlord

legal responsibilitiesAs mentioned earlier, while HMO properties tend to deliver better yields, there are legal and management responsibilities for a HMO landlord.

Failing to understand what these legal obligations are could lead to fines of up to £5,000.

As a HMO landlord, you must comply with these legal requirements:

  • The property must display a notice giving details of the landlord’s name, address and contact number. This must be in a prominent position and if it doesn’t contain the landlord’s contact details, then it must give the property owner’s details.
  • The HMO management needs to be well maintained and records must be kept of all inspections and maintenance work carried out. The property will also be subject to health and safety inspections.
  • The landlord has an obligation to ensure that their HMO property is not overcrowded with tenants.
  • The property must also have working smoke alarms to meet fire safety standards in the kitchen and also have heat detectors.
  • All fire escapes must be kept clear.
  • The landlord also needs to have a fire risk assessment carried out and failing to do so could lead to criminal charges should tenants be injured from fire.
  • HMO landlords must also maintain proper drainage and a clean water supply and electrical equipment will need to be inspected every five years.
  • And if the local council requests a gas and/or electrical safety record, then it must be supplied within a week.
  • The communal areas will also need to be maintained well, so they are safe and clean and the exterior and interior of the property should be kept in good order.

Finally, there will be a requirement to provide a minimum number of shared bathrooms and kitchens, and this information must be given by the local authority’s environmental health department.

HMO landlord insurance

It’s also crucial that a landlord with a HMO has the correct landlord insurance as part of their management regime and you will need a specific policy for these properties.

Also, should there be a tenant who wants to sublet their accommodation, then it’s likely that your insurance will not cover this.

Rules for tenants in a HMO

Rules for tenants in a HMOThe obligations when running a HMO are not just down to the landlord, the tenants are also responsible for some things. They include:

  • Tenants must follow fire safety guidelines as well as the refuse rules that have been implemented by the landlord
  • The landlord must be allowed reasonable access to complete their duties
  • The tenant must not damage items that a landlord is under a legal duty to provide.

HMO licences for landlords

HMO licencesThere’s also another important management consideration for a landlord with a HMO property and that is the issue of having a HMO licence.

Not all HMO properties will require a licence from the local authority, but most will insist that a multiple occupancy HMO will require a licence to ensure that it is being run correctly.

You will need a HMO licence as the landlord if:

  • The HMO property is taller than three stories and has at least five occupants from two or more households. This will be a mandatory licence requirement.
  • Some local councils have additional licensing schemes and if they believe that HMOs in their area are not being managed by the landlord properly they can take legal enforcement action.
  • You should enquire with the local authority to see whether your HMO requires a licence and some authorities will demand that all private landlords need a licence for running a rented property in their area regardless of its size, so it’s always wise to check.

Tips on finding HMO tenants

As all landlords will know, finding tenants for a rental property is an important part of running a successful investment. The same applies to finding HMO tenants and there are two ways of doing this:

  • The first option is to use a letting or managing HMO agent to run your property and they will have a list of potential tenants who may be interested and will know how to access local demand.
  • The other route is to find a HMO tenant yourself and you can do this by using platforms such as Rightmove or by simply placing a ‘To Let’ board outside a property advertising an empty room.

It’s also worth appreciating that the location of your HMO will be crucial when it comes to finding tenants because you will need to meet local housing demand that is already there. This research should be done before you buy so you can see what the local competition is like.

There are a number of websites available offering the chance to advertise for a tenant for free or you could use an estate agent or letting agent who offer a paid-for service to find the tenant rather than having a service fee for running the property.

It’s important that when looking for new HMO tenants that the rent price is right to attract them, and you should check local competitors or letting agents to see how much is the right price.

As with all rental properties, you will need to carry out reference checks, place the deposit with a Government-approved scheme and carry out an inventory of the property before tenants move in.

You also need to give tenants the government leaflet on ‘How to rent a property’ and a copy of the Gas Safety certificate.

Bedroom sizes for licensed HMOs

Since October 2018, for any landlord who renews or applies for a new HMO licence, then there’s a requirement for minimum bedroom sizes. They must be:

  • For anyone aged 10 or over, 6.5 square metres
  • For two people aged 10 or over, then this must be 10.2 square metres
  • For a child under the age of 10, it is 4.64 square metres.

It’s also important to appreciate that some local authorities may set different standards for the bedroom sizes in their area.

Penalties for not having an HMO licence

Penalties for not havingWhile some investors may believe that they can get away without having an HMO licence if it’s requirement in their area, then you are facing the prospect of being fined and you may also end up paying up to 12 months rent to the property’s tenants.

Also, it’s likely that the council will reclaim any Universal Credit or housing benefit that any of the tenants may have been paid to help pay their rent.

For those landlords who use an assured shorthold tenancy for their tenants in a HMO and if yours is not properly licensed when there is a legal requirement to do so, then you will not be able to use a Section 21 notice to evict them.

Running a HMO property

Essentially, it is really important that landlords understand that running a HMO property is more involved and time-consuming than it is for a rental home for a single person or a family. There are rules in place to protect tenants but these also help protect tenants too and while running a HMO is harder – the rewards from your investment will make this a worthwhile endeavour.

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