HMO: Huge Money Opportunity?

Although Multiple Occupancy can achieve huge rewards in the form of rents, in particular student lets, Landlords must take the required legal procedures to ensure it is all above board. In our experience it is easy to gain over 50% premium on rental income under HMO. There are now professional agents that can take care of the managements and legalities but here are some basics you must know. Licenses are only £335, so get them and don’t risk fines or prosecution when the outlay is so small.

The returns can significant, raising the ROI above any other residential investment, letting are very easy through university listing or sites such as www.spareroom.com.  Please get the relevant advice and don’t take short cuts in the pursuit of profits.

After reading this nitty gritty we offer a fantastic investment opportunity at the bottom of the article.

Here is the Basics

What is an HMO?

HMO stands for House in Multiple Occupation and generally refers to one of the following:

  • A house split into bedsits
  • A house or flat share where each tenant has their own tenancy agreement
  • Students living in shared accommodation

The term can also refer to hostels and Bed and Breakfast accommodation which isn’t just used for holidays but these two categories aren’t relevant to most residential landlords.

Depending on your property, its tenants and where you live you may be required to obtain a license for your HMO.

New HMO planning regulations as of April 2010

As of April 6th 2010 the laws governing HMOs have changed. The main change that will affect rental accommodation is to the classification of rental properties based on their usage.

The previous classification system included 2 basic categories relevant to rented accommodation:

  • Single dwelling – A house or flat let to one family or up to 6 tenants living as a single household
  • HMO – Including bedsits and larger shared houses

The new classification system adds a further category for shared houses with 3-6 tenants living as a single household, taking them out of the ‘single dwelling’ category

A landlord who owns a property that is currently let to a family but wants to let it by the room or to a group of 3-6 tenants (whether students, friends or young professionals) will need to apply for planning permission to do so (this process incurs a cost, currently £335).

Important points to consider

  • The changes are not retrospective so should only take effect when you want to change the way a property is used
  • There is an automatic right to revert to a single dwelling after having been an HMO but no automatic right the other way round. This could mean that, if you change use from a shared house to a family house, you may need to apply for planning permission to change back
  • HMO licenses had to be granted as long as certain criteria were fulfilled. Planning rules are discretionary so will be affected by both local and national policy

HMO and lodgers

The new classification will apply to live in landlords who take in more than 2 unrelated lodgers. If more than 2 unrelated lodgers live with a landlord then the landlord may have to apply for planning permission

HMO licensing

Landlords must register their HMO with the council. The council will then assess whether there is enough space for the occupants and if the property is well managed before granting a license. Councils also have the power to introduce licensing for individual smaller HMOs or all rental properties in certain areas they want to improve so always check with your local council to see what the rules are where your property is.

Are there any exceptions?

The following are exempt under current rules:

  • A flatshare containing two unrelated people
  • A landlord living with up to 2 lodgers
  • A building where all occupants are freeholders (or long leaseholders)
  • Regulated buildings such as bail hostels and care homes. Domestic refuges, however, are not exempt

Purpose-built blocks of flats are not HMOs. However, if any of the individual flats are shared by more than 2 tenants in two or more households they will be HMOs.

Houses which are converted entirely into self-contained flats will only be HMOs if the conversion did not meet the standard of the 1991 Building Regulations and more than one-third of the flats are let out on short term tenancies.

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