What is a HMO?

HMO stands for House in Multiple Occupation, and refers to a single house/building, or part of, which within it contains three or more residents who do not form a single household. Typcially there are two types of HMO properties and occupants.....

 

Type One - Shared House

A property with more than three residents either related, friends, work collegues etc. We call this a single household. There are no locks on the room doors and everyone "shares" the entire property, The tenants would all be on one Tenancy agreement with one lead tenant nominated. For legal definition this is not a HMO however in regards to management it still requires ample knowledge outside a normal family home.

 

Advantages

  • The tenants are responsible as a group for all the bills (council rates, heating, lighting, etc.)

  • The group is also responsible for the rent, one rent payment is made (usually by the lead tenant) who will then in turn collect the relevant proportions from the other tenants. In other words ALL tenants and/or guarantors or responsible for the total rent regardless of who seperately is not paying their share.

  • Inventories include the entire property meaning responsiblity for consumables (i.e light bulbs), and condition of ALL areas fall upon the tenants.

  • The regulations from building control regards fire detection and construction are eased, reducing inital conversion costs.

 

Dis-advantages

  • If you market a house with five rooms you need a group to move in of five tenants. This restricts your possible market audience. If you had a nine room house share, finding nine tenants to all move in together as a group will be quite a challenge, lenghtening your voids.

  • House shares tend to be more popular with students, meaning more thought has to be taken to affordability from the tenant (i.e guarantors), and contract lengths (9 months or 12 months etc).

  • What if one tenant falls out with the others and moves out without notice. Replacing a tenant cannot be anyone, they must be part of the group. You do have the remaining group to fall on for the rent, but what if two move out. This can be a rather messy situation of rent arrears and section orders if not managed correctly.

 

 

Type Two - Bedsit Type

A property with more than one household living there, and either sharing amenities (i.e kitchens, bathrooms etc.) or self contained. All rooms/flats have locks on the doors enabling privacy.

 

Each tenant would be on an individual Tenancy agreement, and would be treated as such in regards to management of that tenancy.

 

Advantages

  • As tenants are on individual Tenancy Agreements they can be replaced naturally, or worst case evicted without any effect to the remaining tenants (or your cash flow). This means voids are limited to rooms as appose to the entire property.

  • You can market to all possibilities including the ever growing professional market, who are looking for affordable accomadation house sharing provides. 

 

Dis-advantages

  • In most cases responsibilty for utility bills will fall to the landlord. Although you will include this with the rent, it requires a little more management in the way of these extra bills. However to turn this one around, a better judgement can be made to a tenancy application in terms of their affordability. All a prospective tenant needs to buy is food, so looking at their income better reflects if they can pay their rent.

  • A tenant's responsibilty in regards to consumables and condition of the property finish at their door. Although you can include the whole property in inventories, unless you or another tenant witness' damage it will be hard to pursue anything in regads to deposit etc.

  • Regulations are much more in depth. You may require a license for your HMO, Building regulations are more in depth in relation to the passage of sound and fire dection and escape.

 

Summary

As you can see both types can be very profitable and but knowing your property type, possibility, yield and target market will all influence the end decision. In my experience I manage mainly the second type (bedsit type) as these tend to make much more rent over a year in commparision to the first. Just do your homework as penalties for incorrect management can be very costly and now criminal in prosecution.

 

Remember I am here should you require a little advice or guidance.