HMOs, or Houses in Multiple Occupation, are seen by some as being an easy way to make money in the lettings business. It is true that the profits made on HMOs tend to be higher than the profits made on other types of property. The average rental yield on HMOs is around 11%, compared to an average of around 6-7% for standard lettings. That doesn’t mean, however, that HMO letting is easy.
An HMO is defined as any property where three or more unrelated people live together. That includes homes shared by groups of professionals or students, houses made up of bedsits, and more formal settings such as halls of residence. HMOs are subject to stricter regulations than other properties. As well as the landlord’s general responsibility to keep a property in a safe condition, there are extra demands made of HMO landlords. They include the need to keep hallways clear, install fire alarms and to register the property with the local council.
That might all sound like a lot of hard work, and it can be compared to renting to families. However, having several tenants all paying rent separately means rents can be set higher without squeezing tenants’ budgets unreasonably. Having rent payments coming in from individual tenants also helps protect you (and your mortgage) from arrears: while one tenant might run into difficulties paying, it is unlikely that their fellow tenants will have problems at the same time.
Being a Good HMO Landlord
As well as meeting local authority requirements and registering their property, HMO landlords should bear in mind some of the extra responsibilities that come with this kind of letting. The reason that HMOs are more heavily regulated than other properties is that groups of (often young) people living together are generally harder to manage than families. If you are thinking of tapping in to the high yields to be had from HMO letting, here are some of the things you need to bear in mind.
• You will usually need specialist HMO landlords insurance.
• You will need to be willing to check references thoroughly to try and avoid rowdy tenants, and to deal with anti-social behaviour before it becomes a nuisance to others. You can be held responsible if you don’t.
• You have to keep track of who lives in the property – don’t allow tenants to sublet rooms without your permission or you could fall foul of regulations.
• You are responsible for making sure council tax is paid – it is usually easiest to include this in the rent.