Are you considering investing in an HMO property in 2024? Do you want to know the ins and outs of being an HMO landlord? With the changing landscape of the rental market, it's important to stay informed about the rules and regulations surrounding HMO properties. In this article, we'll provide you with a comprehensive guide to investing in HMOs and managing them effectively.
What Exactly is an HMO Property?
HMO stands for House in Multiple Occupation or House for Multiple Occupation. It refers to shared accommodation, often known as "co-living". HMOs are a popular choice for students and young professionals who are looking to share a house or flat. These properties usually come with inclusive bills or capped bills and are located in towns and cities.
An HMO property is defined by the Housing Act 2004. According to Section 254 of the Act, a property qualifies as an HMO if it is occupied by three or more individuals from different households who share one or more basic amenities. A small HMO is defined as having 3-4 occupants, while a large HMO has 5 or more occupants. To determine if a property is an HMO, you can refer to the simple flow chart provided in the original article.
What are the Legal Requirements for an HMO Property?
For an HMO property to be considered legally compliant, it must meet certain criteria. Basic amenities include toilets, bathrooms, and cooking facilities (i.e., a kitchen). However, self-contained flats within a building are generally not considered HMOs unless they fall under Section 257 of the Housing Act 2004.
It's important to note that the definition of "household" for an HMO property is broad. It includes members of the same family, couples, and even extended family members. For example, a property shared by 3 single individuals or 2 couples in 2 bedrooms would be considered a small HMO if they share a bathroom or kitchen.
How will the Renters Reform Bill Affect HMO Properties?
The Renters Reform Bill is set to impact both single lets and HMO properties. While many of the changes will apply to both types of properties, there are a few amendments specific to HMOs. These include a new mandatory ground for possession for student HMOs, revisions to anti-social behavior grounds, and changes to rent repayment orders for rent-to-rent HMOs.
When Does an HMO Property Need a License?
Not all HMOs require a license. Large HMOs with 5 or more occupants from 2 or more households sharing basic amenities must obtain a mandatory license. Failure to do so can result in penalties and rent repayment orders. Additionally, some local authorities have the power to introduce additional licensing schemes for smaller HMOs that are not covered by mandatory licensing. To determine whether your property requires a license, you should contact your local council.
What is Article 4 and How Does it Affect HMO Properties?
Article 4 Directions allow local planning authorities to require property owners in specific areas to obtain planning permission for conversions that would typically be allowed under permitted development rules. This means that if you're planning to convert a single home into an HMO in an area subject to Article 4, you'll need to allow extra time for planning permission. It's important to research and understand whether your area is subject to Article 4 regulations before embarking on any conversion projects.
How Do HMO Room Rents Compare to Single Lets?
HMO room rents are typically higher than single let rents. In recent years, HMO room rents have been increasing at a faster rate than single lets. However, it's important to consider that HMO rents often include bills and the rooms are furnished, which can affect the overall return on investment for landlords.
Tips on How to Manage an HMO Property
Managing an HMO property can be challenging due to the constant turnover of tenants and the regulatory requirements. While it is possible to self-manage HMOs, it requires a high level of organization and knowledge of landlord obligations. Many landlords choose to work with letting agents or virtual assistants (VAs) to handle the day-to-day management of their HMO properties. Letting agents specializing in HMO management or property management VAs can help streamline operations and ensure compliance with HMO regulations. Additionally, utilizing electronic tenant management systems can simplify communication between landlords and tenants, making it easier to address maintenance issues and keep records.
How to Manage Bills as an HMO Landlord
HMO landlords have the option to include bills in the rent or have tenants handle them separately. Inclusive bills are popular among renters as they save them the hassle of dealing with utilities. There are many utility management services available for landlords to streamline bill management, and smart meters can help track usage and eliminate the need for manual meter readings.
Changes to Council Tax Valuation of HMO Properties
The Council Tax (Chargeable Dwellings and Liability for Owners) (Amendment) (England) Regulations 2023 state that HMOs are to be valued as a single property for council tax purposes. This means that HMOs will receive only one council tax bill. However, it's important to note that self-contained flats covered under Section 257 of the Housing Act 2004 are excluded from this regulation.
Final Thoughts on HMOs
HMO properties can offer landlords excellent returns on investment. However, they come with increased regulation and management responsibilities compared to single lets. It's crucial for landlords to stay organized and keep up-to-date with their legal obligations. Whether you choose to self-manage or work with professionals, maintaining compliance and providing a safe and comfortable living environment for your tenants should be top priorities.
You may also find the following articles useful:
- Achieving Economies of Scale with a Growing Rental Portfolio
- A Landlord Guide to Increasing Rent
- The 10 Key Changes in the Renters Reform Bill
- What Abolishing Section 21 Means for Landlords
- Is Passive Income a Myth for Landlords?
- A Guide to Buying Tenanted Properties