With the increasing popularity of Houses in Multiple Occupation (HMOs) among property investors, it is crucial to understand how HMO license laws apply to your situation.
As with any property investment, there are advantages and disadvantages to investing in an HMO. The suitability of this option depends on your investment goals, the level of involvement you desire, and financial circumstances, among other factors.
HMO license scheme
Prospective landlords may feel hesitant about the HMO license scheme due to varying rules across different locations and changes introduced by councils on a regular basis.
Operating an HMO rental property without the necessary license can result in legal action and fines, as some landlords have recently experienced. For instance, a landlord in Reading was recently slapped with a significant fine of £23,000, representing the largest penalty issued. The maximum fine for breaching licensing rules stands at £30,000.
Determining whether you require an HMO license depends on the location and specific regulations of the area. It is advisable to contact the local council to ascertain the applicable rules. Many areas have implemented “selective licensing,” which means that HMOs of any size require a license to operate.
To help you find out the information you need to make an informed decision, you can use this government website to establish whether you’ll need an HMO license in the area you’re considering.
What properties are considered an HMO?
Suppose you own a “large HMO,” which refers to a property rented to five or more people from different households, sharing bathroom, kitchen, or toilet facilities. In that case, you must obtain an HMO license, regardless of the location.
HMO licenses are typically valid for a maximum of five years, and each eligible HMO that you own must have a separate license. Additional regulations specific to HMOs apply, and further details can be found on the government’s website.
Are HMOs worth the investment? They are known to be one of the highest-yielding property types, which attracts many buyers. This is partly due to the separate tenancies, minimising periods when rent is not being received.
For those seeking higher-than-average rental returns, HMOs generally offer higher returns when compared to traditional Buy-to-Let properties. This is because each bedroom can be rented out to tenants enabling the landlord to secure an income from multiple leases. This model can offer more security for landlords during void periods, as even if one room is empty, they’ll still secure income streams from other rooms.
In terms of tenant profiles, HMOs tend to appeal to young professionals who seek cost-effective housing near city centres. They also attract individuals relocating to new areas as they provide opportunities to meet people.
Although anyone can operate an HMO, they generally attract more experienced landlords who have sufficient time and expertise to handle the additional complexities involved. HMOs come with additional regulations and potential maintenance requirements.
However, this asset class should not put off first-time investors who do their research and have the time to manage the property.
Regardless of your investment journey, it is crucial to stay informed about existing or upcoming HMO license schemes in your area to avoid substantial fines.
Looking for HMO property investments?
If you’re currently looking for an investment opportunity, contact Fabrik Property Group to gain exclusive access to our off-market HMO investments. Our experts will inform you of your legal requirements, including licenses, plus source options with tenants already in to ensure you generate an income from day one of taking ownership.
