HMOs (Homes in Multiple Occupation)

What is an HMO (information taken from Government website - www.communities.gov.uk)

Under the changes in the Housing Act 2004, if you let a property which is one of the following types it is a House in Multiple Occupation:

•    an entire house or flat which is let to three or more tenants who form two or more households and who share a kitchen, bathroom or toilet.

•    a house which has been converted entirely into bedsits or other non-self-contained accommodation and which is let to three or more tenants who form two or more households and who share kitchen, bathroom or toilet facilities

•    a converted house which contains one or more flats which are not wholly self contained  (ie the flat does not contain within it a kitchen, bathroom and toilet) and which is occupied by three or more tenants who form two or more households

•    a building which is converted entirely into self-contained flats if the conversion did not meet the standards of the 1991 Building Regulations and more than one-third of the flats are let on short-term tenancies.

There are three types of HMO in my experience.

a)    Bedsits

b)    Students

c)    Professional HMOs

My view is that professional HMOs are the only ones worth considering. However I do have investor friends that have student HMOs that do work well but I haven’t yet met anyone who is making bedsits/DSS HMOs work (I’m sure there are some that work – please let me know). The reason I don’t like student of bedsit HMOs is due to the amount of work involved in setting them up, their unpredictability and also there are very few letting agents that specialise in these areas so the choice of agent is very limited and there might not be good letting agent available. In my opinion there also more risk of tenant disputes within an HMO as unrelated tenants using common areas such as bathrooms and kitchens won’t resolve issues like tenants in a single household would do.

The obvious benefit with HMOs is that they do, on paper, make a higher yield than normal property investments. This is very tempting, especially with reducing yields and costs hardly covering the costs of investment.