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The Ins & Outs of HMO Rent 2 Rent · The Property Unleashed Podcast

• 0:00
  Speaker 1: HMO investing high rental income or high headaches?
• 0:03
  Speaker 1: Let's find out.
• 0:04
  Speaker 1: So HMOs are houses of multiple occupation.
• 0:19
  Speaker 1: They are properties where you rent the rooms out to individuals and you have a communal area, maybe share communal bathrooms as well.
• 0:27
  Speaker 1: Now, some of those rooms can have en-suites, and en-suite rooms actually get you more rent.
• 0:32
  Speaker 1: But are they worth the hassle in this day and age, now, here in 2024, all the time we are hearing about different regulations coming in to the housing market making it more difficult for landlords to actually make a profit in the property world.
• 0:49
  Speaker 1: Well, what we're going to cover here today is all about how HMOs can be worth the hassle, but here are some of the things you need to make sure that you are aware of.
• 1:01
  Speaker 1: So first, before we get started, let's first work out what an HMO property is.
• 1:05
  Speaker 1: An HMO property is if you think of a single let property where a family will live in there.
• 1:11
  Speaker 1: They will share, obviously, the whole property themselves.
• 1:14
  Speaker 1: It could be two bedrooms, three bedrooms, four bedrooms, it could be five bedroom rental property, but that one property is marketed for one rent.
• 1:23
  Speaker 1: One family live in that property and that is how it goes.
• 1:27
  Speaker 1: Hmos you have multiple different people living in the same properties.
• 1:32
  Speaker 1: Now again, they can be three bed, four bed, five bed, six, seven, eight.
• 1:36
  Speaker 1: They can go up to be very, very big properties.
• 1:39
  Speaker 1: But what's in it for the landlords is you get higher rental income.
• 1:44
  Speaker 1: Why?
• 1:44
  Speaker 1: Because you rent the individual bedrooms out to individual people.
• 1:49
  Speaker 1: So you get, in a case of a five bedroom property, five rents coming through rather than just one.
• 1:57
  Speaker 1: Now those rents won't be the same as a single let property rent, but they will altogether make a higher rental income for that property than they would if you just let it out to a family.
• 2:08
  Speaker 1: Now there are a lot of complexities that come with that as well that you have to be aware of In a lot of areas now, a lot of cities and towns and things they've brought in what is called Article 4.
• 2:20
  Speaker 1: Now, article 4 is an area that you can go onto your local council's website and you can look at a map, and if it is an article four area, it will be drawn out on that map, so you'll be able to very clearly see that that is an article four.
• 2:34
  Speaker 1: What does that mean to you as a property investor?
• 2:37
  Speaker 1: Well, if you were to buy a property and then use it as an HMO and it was in an article four area.
• 2:43
  Speaker 1: You would have to go through full planning to get permission from the council to be able to convert it to use it as an HMO.
• 2:51
  Speaker 1: Why do you have to do that?
• 2:52
  Speaker 1: Because also HMOs normally three or more people need a license in that area as well to be a compliant HMO.
• 3:03
  Speaker 1: You will not get the license unless you go through full planning in an Article 4 area.
• 3:08
  Speaker 1: If you don't have Article 4 in that area and, as I say, do check with your local counsellors because different areas have different rules then normally you can apply for a license.
• 3:18
  Speaker 1: You can convert that property into an HMO up to six bedrooms.
• 3:23
  Speaker 1: If you go over six bedrooms, it's a whole different ball game.
• 3:27
  Speaker 1: You start to go into what is a commercial sort of property.
• 3:30
  Speaker 1: It starts to need to then be sui generis.
• 3:33
  Speaker 1: Okay, you would definitely probably need planning in your area.
• 3:37
  Speaker 1: I say definitely, probably, because you would need planning to make it a seven-bed property.
• 3:42
  Speaker 1: But if Keeping it below that in a non-Article 4 area, you can convert these very, very easily and a lot of people have.
• 3:50
  Speaker 1: But is it worth the hassle?
• 3:51
  Speaker 1: Is it worth all the strain and effort that a lot of people are having with their HMOs.
• 3:56
  Speaker 1: Well, the one thing you have to look at in your area is their demand.
• 4:00
  Speaker 1: Now, the markets in a lot of areas can be very saturated, which means there's a lot of these HMO properties in specific towns and cities.
• 4:09
  Speaker 1: Okay, but that doesn't necessarily mean that you will not be able to rent your rooms.
• 4:14
  Speaker 1: You see, there's a lot of tired and old properties out there that are still trying to do and rent their rooms, looking the same as they did maybe 10 years ago.
• 4:24
  Speaker 1: Okay, there is a good demand, a high demand in most areas, for properties that are in good condition, that are managed very, very well.
• 4:35
  Speaker 1: Now, the difference, again, between a single let property and an HMO is that a family will move into your single let property.
• 4:43
  Speaker 1: They will take on the bills, they will look after the property.
• 4:46
  Speaker 1: Obviously, if there's a maintenance issue, the landlord will still pay for that, but they pretty much just get on with it.
• 4:52
  Speaker 1: An HMO, on the other hand, will have you, in most cases, paying the bills unless it's a student property.
• 4:59
  Speaker 1: It will also have you looking after the minor maintenance.
• 5:03
  Speaker 1: You potentially putting cleaners into the property, maybe twice a month, to make sure that the communal areas are nice and clean.
• 5:10
  Speaker 1: You will probably have to look after the gardens as well, if it needs mowing and cutting and things like that.
• 5:15
  Speaker 1: Now of course you can get a gardener in to do all of those sorts of things as well.
• 5:20
  Speaker 1: But there is a lot more moving parts in an HMO than there is fundamentally a single let property, where the family or the person living in a single let property will probably look after the garden themselves.
• 5:31
  Speaker 1: Do you know what I mean?
• 5:32
  Speaker 1: They'll take care of all the bills, the council tax and everything like that, whereas an HMO you won't.
• 5:37
  Speaker 1: So you have to be mindful of that fact that that could cut in and will cut into your profits.
• 5:42
  Speaker 1: But, as I say, because you can get more rental income from an HMO, it works very well.
• 5:47
  Speaker 1: Now, because you can get more rental income from an HMO, it works very well.
• 5:50
  Speaker 1: Now the hassle part of an HMO comes because you've got more people of a different family living in there.
• 5:55
  Speaker 1: I in a single let property.
• 5:57
  Speaker 1: If that family have an argument and fall out, that's their business.
• 6:01
  Speaker 1: They're a family.
• 6:02
  Speaker 1: They got to deal with it.
• 6:03
  Speaker 1: We've all had that in our own families.
• 6:04
  Speaker 1: We're not here as landlords or anything to look after that.
• 6:08
  Speaker 1: But in an HMO, where it's individuals from different families, if there's an argument, a dispute, somebody's not quite tidied up after themselves there can be lots of little niggly things that upset a lot of people.
• 6:20
  Speaker 1: Now you can get a management company in a letting agency to manage these for you, but again you will have more disturbances, more issues and problems with an HMO, but of course, with the higher cash flow, the higher income coming through, those are some of the things that we have to put up with.
• 6:39
  Speaker 1: Equally, we have to pay the bills.
• 6:41
  Speaker 1: So we need to make sure that the people living in our HMO properties respect this and don't just turn all the heating on, open all the windows and have no respect for it.
• 6:50
  Speaker 1: Why?
• 6:51
  Speaker 1: Because if they're not paying for it, then they won't really care, will they?
• 6:54
  Speaker 1: So we need to make sure that we've got things in place like timo stats, we've got LED light bulbs, we've got sensors, potentially in the corridors and the hallways and the communal areas, that the lights will automatically switch off once somebody's left that area.
• 7:09
  Speaker 1: Those things that you wouldn't normally put into a single let property you will put in to an HMO property and of course, as I said before, you have to make sure that you're putting the right sort of people into the property together.
• 7:23
  Speaker 1: You can't put students with professionals, with other people as well.
• 7:27
  Speaker 1: You've got to sort of know your market.
• 7:29
  Speaker 1: So if you are going to cater for students in your area because there's universities and things, make sure that all the people that go in there are students.
• 7:36
  Speaker 1: If it's blue collars, make sure it's all of those sorts of people as well.
• 7:42
  Speaker 1: We, like in our own portfolio, is to make little pockets of communities where we can.
• 7:45
  Speaker 1: You can't always do that, but we try and make sure that we make communities in there.
• 7:49
  Speaker 1: So we have some for factory workers, where it's only really factory workers that are working shifts, that live in that property and that's who we market out to and attract.
• 7:59
  Speaker 1: We also have properties near the hospital where we try and just have NHS workers in there as well.
• 8:04
  Speaker 1: Why?
• 8:04
  Speaker 1: Because they're more respectful for each other and those things can work very, very well.
• 8:09
  Speaker 1: That means your tenants will stay longer, keeps your profits up as well.
• 8:13
  Speaker 1: I know people that have taken on or bought properties, then converted them into HMOs.
• 8:18
  Speaker 1: They've done high-end co-living and they've absolutely flown with it.
• 8:23
  Speaker 1: Their tenants love it, they respect where they are and they are making good profits, as I say, and they don't have many hassles.
• 8:30
  Speaker 1: I've also seen it where people have taken on properties that are maybe a bit more run down, maybe haven't really put a lot of money into the properties, and just let them out like that.
• 8:39
  Speaker 1: And the problem with that is and a lot of the challenges you can have with that is you end up attracting the wrong type of tenants.
• 8:46
  Speaker 1: You don't really, unless you're catering for that class of tenant, want to be attracting the sort of tenants that aren't going to respect each other in the property, the properties themselves, or even just be a good tenant that pays on time.
• 8:59
  Speaker 1: Another thing that you want to make sure that you are doing is you're getting guarantees or having a guarantor for anybody that's going to be living in your property.
• 9:07
  Speaker 1: Why is that important?
• 9:08
  Speaker 1: Well, because at the end of the day, if you're a landlord and you let somebody live in your property and they don't have a reference checked guarantor, you in effect become that guarantor because if they stop paying or they become a nuisance or a problem and you've got no other way of actually getting your rents, or, if they're causing damage and things, getting your money back, then you have a major problem.
• 9:30
  Speaker 1: So I think when you're looking at the market, a lot of people will say I don't like the sound of HMOs.
• 9:36
  Speaker 1: What I will say on that is you can build up a very, very quick profit with HMOs, where you may need 10, potentially even 20 single lets to make the money that potentially five good HMOs could make you.
• 9:50
  Speaker 1: All of a sudden it starts to look a lot more attractive.
• 9:53
  Speaker 1: Ok, single lets are great to get the capital growth, but the month on month cash flow coming through will not be as high as an HMO.
• 10:01
  Speaker 1: So if you're looking for cash flow to potentially get you out of that day job, give you more money, help other people, then HMOs are a great option.
• 10:10
  Speaker 1: But just make sure that you check your area.
• 10:13
  Speaker 1: You know your tenant type in that area, okay.
• 10:15
  Speaker 1: You also know the standard that you want your properties to be at.
• 10:19
  Speaker 1: You get reference checks on all of the tenants that are there and potentially, if you don't want to manage them, you find a very, very good local management agency that will manage those properties for you to help you not only keep your tenants in a nice, safe property, which is what we want to do, but equally they stay longer we earn more cash flow and, of course, that gives us options to go out there, potentially buy more properties and continue to do what we're doing.
• 10:45
  Speaker 1: I hope you've enjoyed this episode and I look forward to seeing you in the next episode soon.