Lot’s of new landlords often ask me ‘What is a HMO?’ Well the HMO actually stands for ‘House of Multiple Occupancy’ which means that the people living in the property are separate households such as a house of 4 students living in a 4 bedroomed house and all paying rent separately per room. Let’s take a look at this in more detail, and consider the pros and cons of a HMO as a landlord.
What is a HMO?
A House of Multiple Occupancy or HMO is a property where there are three or more unrelated adults living in the property, in at least two separate households. This is the usual definition given by most UK councils.
If they all pay separate rent to one landlord, then it’s basically a HMO.
HMOs can be purpose-built for shared occupation by people who do not form a single household, or they can be converted from shared houses or flats.
Setting up a HMO
It is important to get advice on HMOs because in most areas of the UK landlords have to apply to the council to get a HMO license. HMO’s are restricted in some areas to protect the residents and discourage further new HMO’s in certain areas. This has happened in some parts of Wavertree in Liverpool.
If you are interested in getting a HMO in Liverpool then you can find the Liverpool City council’s guidance here.
You will need to get the essentials right including fire alarms, fire safety doors with automatic closers and Carbon Monoxide detectors. You can usually arrange for some of these items for free from the local fire service, along with a free fire safety inspection. You can also arrange for someone from most councils to come round for an inspection to tell you what you need to pass the HMOS guidelines.
What are the advantages of a HMO?
The reason that many landlords choose to let out multiple properties is because it helps them recoup the cost of their larger mortgages and ultimately makes more money for them. One landlord in Bristol told us that:
“HMOs have helped us to make a profit. If you have a mortgage on your house, HMOs can help you with the repayments at low outgoings”
There are many advantages including:
- More profitable in the short and long term
- Less risk for eviction – when a tenant on a whole house AST is being evicted you lose all the income for that property until the eviction takes place. With a HMO it is unlikely that you will be evicted all the tenants at once so at least some cash will be coming in.
- Work well in student areas
- Good capital growth
However, they are also higher maintenance and generally more of a headache! But you can get property management companies to help with this.
Where are these properties most likely to grow?
HMOs are more and more becoming the norm in cities like London, Manchester, Birmingham, Liverpool and Bristol. They are cities that are growing at a very fast rate and people who work in them need somewhere to live.
For instance, Bristol is one of the fastest growing cities in Europe because it is a crossroads for all forms of transport and has an airport. This makes it very attractive to commuters from London and other surrounding areas. As Bristol grows, high rental yields become more and more attractive to investors.
It’s difficult for an investor or someone who lives outside of the city to know who will be living in their property when they let it out on a long-term basis. This is where HMO management services come in – you can appoint someone to take on all your responsibilities and make sure the whole property is managed professionally.
What are the disadvantages of HMOs?
There are a lot of reasons why HMOs can be bad for tenants and landlords, including:
- Disturbances from other occupants, such as loud music or parties.
- The stress of living with people you’ve never met before and who may have very different lifestyles from your own.
- The added stresses of living with people who have problems e.g. family dramas, mental illness or substance abuse problems; you might not know it’s going on until you’re involved personally and deeply affected by it (which could be disastrous).
- Some HMOs can treat tenants like cash cows, making them pay for additional services or facilities which can be included in the rent (e.g. paying for cable TV and demanding you stay in during evenings, so they can recoup some of their tv licence money).
- Landlords need a special mortgage or permission from your mortgage company to HMO
What should a tenant consider when looking to live in an HMO?
When considering living in an HMO, it is important for a tenant to think about the following points:
1) How do I know that all service charges are legal?
2) Are there any conditions on who can live in my flat and how many people can live in it?
3) What is the landlord’s policy for eviction?
4) If the landlord wants to evict me can I afford to defend myself?
5) Does my tenancy agreement protect my deposit if we part company with the Landlord?
6) Does my tenancy allow me to change from furnished to unfurnished, or vice-versa?
7) Is there a procedure for dealing with anti-social behaviour?
8) Do I understand what is included in my rent and who pays for additional services?
9) Is there somewhere to go if I am unhappy with the way the owner/manager of the HMO is treating me or other tenants?
10) Are there conditions attached to my tenancy agreement?
11) If so, what are these conditions and have they been explained to me?
12) Do I understand how any service charges work?
13) What repairs does the Landlord normally carry out, and when will they be done?
14) How often are those charges paid?
15) Do I have a right to apply for change of tenancy to a shorthold assured tenancy during the fixed term, and if so can I afford the possible rent increase?
16) What facilities exist in my block that are included within the service charge, e.g. lifts, front door security entry system, communal doors to other blocks?
17) How secure is my lease and can I transfer it?<br>
18) What happens if the Landlord wants to sell the building or alter the terms of my tenancy agreement?
Overall, there are pros and cons to having a HMO, so you need to weigh it up and see if it is something that could work for you.