Konnexsion Property Manager

Do you want to be an HMO landlord with all that comes with it? You may be just starting out or an experienced landlord exploring ways to diversify your portfolio or expand your revenue. Either way, you will have a lot to consider before you proceed. There is more involved in setting up and managing an HMO. It is true that the yields are typically greater than the average single let but do not let this highly simplified view of yields cloud your judgment. Running an HMO is more expensive and not only are there additional regulations to meet but you will be typically funding council tax, television license, phone, internet and utilities. Irrespective of what the title of this article may suggest, there is no one perfect HMO property. During your investigations, you need to find the best HMO property that meets demand in the particular area you are buying. There is no point purchasing and refurbishing a Property perfect for affluent working professionals when the property is located in the middle of an area serviced by students. Finding the right property is just as much about matching it to your future tenants.

What is an HMO Property?

A building (or part of a building) occupied by people who do not form a single household, who share communal areas and amenities is classified as an HMO within the Housing Act of 2014. The UK Government has important information which can be found on their website. You will be providing multiple tenancy agreements for your HMO tenants. However, don’t assume that if you provide a single tenancy to a group of friends that share your 3-bed property it will not be classified as an HMO because it will. Having decided to be a landlord of an HMO property, the next decision will be whether to find an existing HMO property for sale or changing a single let property into an HMO conversion. Either way, it must be the right property in the right location. Research is vital and there are essential elements to focus on in order to get it right. Courses are available for prospective HMO landlords. They can be found on several websites including landlords.org.uk or rla.org.Here are the key aspects you should research and consider.

How can a Local HMO Officer advise you?

Before spending time searching HMO property for sale, talk to the local HMO Officer. Depending on the Council, HMOs could also fall under the responsibility of the Environmental Health or Housing Department. They are responsible for regulating and enforcing correct HMO management and have the jurisdiction to introduce their own licencing requirements into the local area. They can give a general idea of the local HMO requirements, where there may be an oversaturation of HMO properties or otherwise. As a result, you will find some councils have restrictions on the granting of HMO licenses in place.It should be noted that each Local Council will differ in their approach to HMOs. There are Government guidelines that cover rental property across the country although these can be different for England, Scotland and Wales.A good source of information relating to council licensing in the London Boroughs is the London Property Licensing. The team is widely respected and have a vast knowledge about Licensing across London.

Market Research to find the right HMO

It is critical to conduct some in-depth market research to ensure you’re making the correct decision on the location of an HMO property. Is it students or young professionals you are trying to attract? Whichever it is, you need to ensure your property will stand out and appeal to this market. With this in mind, looking at demographics, property, and room rental price ranges along with hot and cold spots for sales and rentals in the area will give an initial insight on where to buy an HMO property. However, particular attention should be focussed on the following: 

• Yield – expected % revenue after expenses and the ratio of investment to yield- so low property prices and high yield preferable.
• Demand – how many people are looking for rooms.
• Supply – how many rooms are available in relation to the number of people looking for one and housing stocks and types
• Competition – A concentration of people looking to buy or run HMOs in a particular area can push the price of properties up which means there will also be competition when renting them out.  
• Population - student, professional and social class

This is where the spreadsheets come in handy! Set thresholds to your criteria so they can be drilled down within each area. As an example, consideration could be just be given to areas/postcodes with both strong yields and high demand for a particular market. Also look beyond the current stats find out what transportation changes are being planned. Most capital gains and demand changes will be as a result of general investment in the area through both transportation and organisations.Plenty of websites provide information which can be extracted and analysed. These include Zoopla, postcodearea.co.uk, mouseprice.com and if you want a paid service hometrack.co.uk .

What type of property makes a good HMO?

Once the preferred location is settled, the next task is to find and view a potential HMO property for sale. In theory any type of property over 2 beds could be made to work as an HMO. However, certain properties will stand out more than others due to their size, number of bedrooms and layout. Like most things it will come down to affordability. Setting the budget and sticking to it will help to maintain the expected yield. Look at properties where you can maximise the number of rooms to rent out. But always remember your audience. The HMO market is getting more and more competitive and without ongoing investment, your property may not be up to the standard of the next HMO down the road. Landlords are focusing on significant differentiation to ensure they attract the best HMO tenants these days. You don’t want to find yourself losing good-paying HMO tenants because you didn't want to invest in a better washing machine or make the common areas a ‘happy’ place to be. Get ideas from other HMO landlords in the area. If you want a good example of differentiation look at Co-Living Spaces by spending on marketing, building a brand and making their properties ‘feel good’ to live in even the smallest rooms market for higher rates than the surrounding area.It should be noted that consultation with the planning department may be necessary before changing the use of a property into an HMO. In addition to obtaining the necessary licenses, and meeting safety obligations. As explained earlier, government guidelines can be different for England, Scotland and Wales. For instance, with effect from 1st October 2018 there are new regulations on the room size and waste disposal required at an HMO in England. Looking for properties which already have the minimum national standards for shared kitchens and washing facilities may be tricky. However, if a property doesn’t meet these standards already, then alterations or an extension will be necessary. Advice from a surveyor or architect as well as planning permission may be required. Other key considerations depending on the type of tenant you wish to attract are:

• Public transport links
• Distance to a university campus
• Distance to nearest shops
• Is there parking or any parking restrictions in place?
• Is it in a safe location?
• Is it noisy at night?
• Outside space – is it too big to maintain or could it be the solution as an additional shared communal space

You will be amazed to hear perhaps that even working out how refuge will be collected and managed from your HMO will need consideration. It remains your legal obligation to ensure your HMO doesn’t cause a nuisance in the area and refuge is dealt with correctly.Ultimately, the decision to buy a specific type of HMO house or HMO conversion will depend on the goal of the project. So, if income is key, the number of rentable rooms is vital. If the value for money is essential, looking for a property that needs updating may be the answer. However, this all very much depends on budget and the lead time on which income can be drawn.

How to find time to manage an HMO

There are many pros and cons to buying an HMO house. HMO Landlords have more responsibilities and legal obligations which could become overwhelming. The need to be fully aware of your obligations along with keeping on top of them means you run the risk of making common landlord mistakes. Being an HMO landlord will become a way of life. You need to ensure that you are available for callouts or have someone else being accessible.Konnexsion will not take away your obligations but will significantly help you manage them. Our all-in-one cloud-based property management tool is designed to make life easier ensuring organisation, productivity, and communication are linked seamlessly. Contact us today at contact@konnexsion.com or go to our website and sign up for one of our trial programmes.