Houses in Multiple Occupation or HMOs have become increasingly popular over the last decade or so. Not only do they give landlords the chance to take on multiple tenants, it can also provide bigger yields when it comes to rental income if managed properly. Setting up a HMO, however, requires a good deal of thought before you actually proceed.
First of all, the potential to get more revenue is offset a little by the greater costs of setting up a HMO in the first place. You will undoubtedly have to carry out some serious refurbishment before you can be classed as a HMO, with adaptations to areas like the bathroom and toilet. Much will depend on what is permitted development in your areas as well and whether you need planning permission for certain work that needs to be undertaken.
Higher Tenant Turnover
While the revenue can be greater, there is generally a greater turnover with a HMO than a traditional buy to let flat. That can mean you’re spending a lot of your time looking for tenants rather than earning money, particularly if you don’t go through a service like a letting agent.
HMO Tax Issues
There have been some changes in the tax relief rules for landlords including the abolishing of the wear and tear allowance. This was 10% if you incurred costs, a useful relief if you have furnished properties which HMOs tend to be.
There has also been a tendency for many councils, particularly now they’re so strapped for cash, to re-band homes that have been made into HMOs. This basically sees the property as multiple dwellings rather than one whole and hikes the final bill.
Article 4 Directions
Changing a home dwelling into a HMO doesn’t generally require planning permission because it’s a permitted development but local councils have the option to bring in additional licensing rules. It can get a little complicated if you are thinking of setting up in certain areas.
You need a HMO licence if you have a large property, usually defined as over three or more storeys with two or more households living there. If the council think there are too many HMOs in the area they can change the goal posts by putting an Article 4 Direction in place. That means you will probably need to gain planning permission even for a small HMO property and you are more likely to have that permission refused.
Even if estate agents are selling properties that are considered suitable for conversion to HMO, your first job should always be to check what Article 4 policies are in place before you decide to invest.
Check Your Legal Obligations
There are a number of legal aspects to running a HMO that you also need to be aware of and that includes ensuring electrical installations are safe and checked regularly as well as having fire safety measures in place. The cost of getting it wrong has also changed in recent times – whereas there was an upper limit of £5,000 for a fine, this is now unlimited. Regular due diligence is therefore key for any landlord who is thinking of taking on a HMO now or in the future.
If you would like to discuss HMO in more detail, please contact us on 01604 644449