We have noticed an increase in HMO property investment. Who wouldn’t want to invest in HMOs as they generate a lot more income than regular buy-to-let.

The cost of setting up an HMO often can be a lot higher than a traditional buy-to-let. And the main reason for that is the initial conversion cost. HMOs are all different, but in order to stand out from the competition and charge higher rent, many landlords choose to offer en-suite rooms. Moreover, many residents want their own bathroom at least. This involves some additional costs.

Another cost stands for the HMO refurbishment. As the HMO property market is being very competitive costs can go through the roof. Landlords want to stand out from the competition so doing high-end refurbishments to attract more tenants.

While regular rental properties can be usually let unfurnished, HMOs are usually let fully furnished and this is another cost to remember about. In addition, you’ll have to furnish each bedroom, ensuite, and kitchen.

The biggest positive thing and the reason to invest in HMOs is that landlords are able to remortgage their HMOs to release capital once the refurbishment is complete. Many landlords after using this strategy are very surprised by their positive cash-flow.

Several councils in West Sussex received funding to crack down on swindler HMO landlords in their areas.

The Government has given grants to Arun District Council, Chichester District Council and Adur and Worthing Councils to help improve standards of housing and encourage new initiatives aimed at targeting the problem.

Arun District Council has received £34,001 from the Ministry of Housing, Communities and Local Government.

“We are very pleased to have been awarded this funding as it will enable us to tackle the minority of landlords in the district who break the law by not offering their tenants adequate housing.

“The funding will not only allow us to take effective and targeted action against criminal landlords, but to also support good landlords in fulfilling their responsibilities.”

Councillor Matt Stanley, cabinet member for technical services, Arun District Council

This money must go towards helping to identify private rented sector housing in the areas covered by the funding, including houses of multiple occupation (HMOs).

It will also find out what HMOs should be licensed and provide energy efficiency solutions for those enforcing or tackling the Minimum Energy Efficiency Standards legislation.

If the HMO is occupied by 5 or more unrelated occupants, landlords must apply for a mandatory HMO license.

It is a criminal offence to operate a licensable HMO without a valid licence and landlords and letting agents may face prosecution, receive a Civil Penalty Fine or a reduced licensing period in consequence of any breach found.

A former Chatteris bank that has been sold for £100,000 – could become a 7-bedroom house in multiple occupation (HMO).

Fenland District Council received an application from Nicholas Leeding of Wimblington for permission to convert the building and to make some changes to the layout.

The application has received a nod of approval from the council’s environmental health team who say it is unlikely to have a detrimental effect on air quality or cause any noise.

The applicant says that the old mid-19th-century building will need a few changes to the historical features.

He says he will expose the original fireplace on the first flood middle room but all other original features “appear to have been removed prior to the building becoming a bank.

“The windows will have the metal bars removed and will be refurbished in situ.”

One of the neighbours has shared concern to planners regarding parking that HMO will lead to even more cars competing for parking space in an already crowded area.

The application is on the council website and comments are invited.

Calls for councillors to inspect the?licensing of houses in multiple occupation (HMOs) across Wrexham have been made. A topic request form has been submitted for consideration by members of the?homes and environment scrutiny committee.

It states that: “For some time members have expressed concern over the?quality, appropriateness and size of accommodation which is offered to individuals residing in houses in multiple occupation (HMOs) and which is controlled by the?licensing regime rather than through the?planning process.”

The concerns over the accommodation size and amenity space provided in some HMO proposals occurred several times over the?years among councillors and planning committee members.

Talking about plans to convert a property on the?outskirts of the?town into an HMO last December, Cllr Jeorrett said it was a “great disappointment that adults are having to live in one room with a long term impact on health and wellbeing.”

As part of the?HMO licensing control, it was suggested that scrutiny “undertake a review of how the?current standards were arrived at” and if they are nationally prescribed or determined locally.

It also proposes that the?committee:

– Compare with other Local Authorities to establish if our standards are more or less generous than others and if they need reviewing.

– Consider the?issue of bed spaces versus bedrooms and occupancy numbers.

– Consider how to ensure that HMOs offer a reasonable standard of accommodation by providing rooms of an adequate size for the?number of occupants and reasonable communal living areas/ circulation space.

– Establish if there need to have differing standards for the?various types of HMO eg. those that primarily house contractors who are working in the?area and those that are conventionally let to tenants – (the?former having a much greater parking need)

– Possibly look at a “Landlords Charter” on how they will deal with complaints

It is hoped that the?scrutiny committee will help “remove the?tensions between determining planning applications and and the?licensing regime for HMOs” – along with “ensuring a better quality of accommodation for the?tenants” and “reducing the?tensions with the?adjoining community neighbours”.

It was assumed that the?topic will take four months to be examined by scrutiny members.

Student HMOs are a wise investment decision for many landlords. While there are some disadvantages of letting to students, there are also significant gains.

In this article, we cover everything you need to know before investing in student HMOs:

Why Let to Students?

Students represent a large number of residents in the private rental sector. The Higher Education Statistics Agency (HESA) reported there were 2.34 million students in 2017/18. This includes graduate and post-graduate students, overseas students, and also part-time students. A significant number of these students are renting accommodation.

Reasons why to let your HMO to students:

• Consistent demand – there will always be students in higher education, so you can expect a regular supply of tenants.
• Students typically rent in one-year blocks – this will provide you a consistent income and guaranteed cash flow.
• Minimal rental voids – most students pay upfront for a year, so even if they drop out of their course, you will not lose.

The Risks of Letting to Students

• Students leave more mass after the contact is finished
• Students expect furnished accommodation
• More risk of anti-social behaviour
• Requires more hands-on management

Finding Right Area Investment Property for Student Tenants

Look at rental yields for top university cities. Bradford offers excellent returns, with rental yields of around 10%. Sunderland and Liverpool are also well worth considering. Nottingham has a large student population – with two major universities in the city, so it also offers good returns.

Furnishing a Student Property

Student properties are usually let fully furnished. You will need to have:

• Beds
• Bedroom furniture
• White goods
• Seating like a sofa
• Desks for each bedroom
• Other miscellaneous items, such as coffee tables, a dining table, vacuum cleaner, bookcases, etc.

Marketing Your Property to Students

Marketing your property to students is the same as any other type of tenant. Students will scroll through sites like Rightmove and Zoopla when they are looking for a suitable property.

Universities send out lists of approved HMOs and other rental properties to new and existing students. Make sure your HMO is on this list.

Social media is a useful marketing tool. Encourage existing students to share with their friends about available properties.

Student Tenancy Agreements

Landlords are commonly providing a joint tenancy agreement. This means if one student doesn’t pay the rent, their housemates are responsible for the costs. The same happens if one student leaves the property early – it is up to the remaining tenants to find someone to fill the gap or cover the costs.

Mortgage and Insurance

Don’t forget to inform your mortgage lender that you planing to let to students, just in case they have any clauses that say: “no students”.

Also, inform your landlord insurance provider. You may need to take out a specialist policy. If you fail to do so, you may not be covered in the event you need to make a claim.

Student Council Tax

The good news is that if you let to students you don’t need council tax. The disadvantage is that you may need to prove you have student tenants. Otherwise, the council might decide to charge you full whack, which would be an unpleasant surprise at year-end.

We hope this has helped you decide whether you want to become a student HMO landlord. If you think we’ve not covered something important, please let us know and leave a comment!

One of the Landlord Associations has agreed they’ve failed Northampton Landlords and should have done a better job. It is known now that the Northampton Council Licence fee is the highest fee in the East Midlands.

“An HMO licence fee of £1,269 – comprising a first payment of £546 for the processing of the licence application and a second payment of £723 for the administration and enforcement of the licensing scheme – will be payable for an HMO that can accommodate up to 5 persons. If an ‘Early Bird Discount’ is appropriate, the size of the second payment will be reduced by £250.”

Page 13 and 14 are shocking.

• £75 + PLUS VAT for the council to help the Landlord with their form.
• £150 + VAT for inspection.
• £120 for variation to a Licence. This can be if you are not managing them yourself any more and are being even more responsible and giving a Letting Agent to manage, the Council charge you too.
• £270 for the council to come  and check your home when you wish to help out and accommodate a refugee. Which the other side of the council are desperate for Landlords to take.

This is becoming a proper License to print money and the Government needs to make some changes.

If you’re looking to invest in an HMO property, there are a few key things you’ll need to do in order to ensure a successful purchase. Here’s a step-by-step guide on how to buy an HMO property:

Step One: Do your research

The first step is always to do your research. This is especially important when you’re looking to buy an HMO property, as there are a lot of different factors to consider. Make sure you understand the ins and outs of the HMO market before making any decisions.

Step Two: Find the right property

Once you’ve done your research and you’re ready to start looking for properties, it’s time to find the right one. There are a few things you’ll need to keep in mind when searching for an HMO property, such as location, size, and price. Work with a qualified real estate agent who can help you find properties that fit your investment criteria.

Step Three: Negotiate the purchase price

Once you’ve found the perfect HMO property, it’s time to negotiate the purchase price. This is where working with a qualified real estate agent can really come in handy, as they’ll be able to help you get the best possible price for your investment.

Step Four: Close on the property

After you’ve negotiated the purchase price and everything has been finalized, it’s time to close on the property. This is when you’ll sign all of the necessary paperwork and officially become the owner of your new HMO property.

There you have it! A step-by-step guide on how to buy an HMO property. By following these steps, you’ll be well on your way to making a successful purchase.

Author Bio:

Agent HMO is a qualified real estate agent specializing in HMO properties. He has over 15 years of experience helping investors find and purchase the perfect property. Contact John today if you’re interested in buying an HMO property.

Looking to buy an HMO property? John Richard can help! As a qualified real estate agent with over 15 years of experience, he knows exactly what it takes to find and purchase the perfect investment. Contact John today to get started on your search

In this article, we have named the biggest mistakes that HMO property developers can make. If you are a newbie, be very aware of these; and even if you are a seasoned investor, it doesn’t hurt to make sure you still know what not to do.

We don’t often like to post anything negative or problematic for property developers, however, we know it can be very stressful to enter into property development, and we know these mistakes are much easier to avoid when we make you aware of them!

Not understanding the risk involved with property rental markets. 

There are always risks in HMO property rental and renovation, these can come in many forms, but they are often only a problem when there is no foresight. For instance, when it comes to HMO renovation, if you were to buy an older house for a very low price there may costs further down the line and the house could need more work doing to it than a younger property. Also, when you are running an HMO, a risk is that multiple rooms become empty and this will drastically reduce the money that the property is making.

Not having a plan. 

The mistake is to hurry with decisions without considering the impact on your HMO portfolio and your income. You need a plan to make sure you are earning enough to cover your outgoings and that you can include expanding your HMO portfolio or making sure you have some money spare if anything goes wrong.

Not checking regulations. 

You don’t need to check the planning permission if you are changing some design or want to put a lamp in a room. However, if you are planning any work you better read up to see what the regulations are. For instance, removing or replacing a fence may seem like a great idea until you realise that the house next door has listed status, causing you a great deal of unneeded stress (and meaning you have to pay a big fine).

Not monitoring your HMO portfolio. 

Your HMO portfolio can tell you both what you are earning and what you can spend, it highlights the prices that people are expecting to pay to live in you HMO, and it’s even suggesting where to invest in the future. Without checking it regularly, you may end up spending more than earning out of your properties.

Not consulting the experts. 

Heading into HMO property development without speaking to experts who know the market, know how to develop an HMO, and has the experience, is going into a complex industry blind.

If you avoid making these mistakes, you can achieve an HMO property investment success without any stress!

RULE 1 – Just Do it.

You will never be ready, the longer you delay the harder it will become to start being an HMO landlord. You will also be held back by the good deals you have missed and hope a similar deal will come along, they rarely do. Accept that much in this business is an act of faith. The following questions are unanswerable you just have to try it: Will you get tenants? Will you get finance? Will property prices increase? Where will interest rates go to? etc etc.

RULE 2 – The 5 tenant rule

An HMO to be viable needs to have at least five tenants. Though there are exceptions to this Rule. The rule goes like this: The first two tenants pay the mortgage if you have bought using a mortgage or the rent if you are renting. The third tenant pays the bills i.e. council tax, gas, electricity, water, insurance, etc. The fourth tenant covers maintenance, voids, and bad debts and the fifth is profit. Try and have six or more tenants as all the extra tenants are extra profit. I find it costs the same to operate a four-bed HMO as it does an eight-bed.

RULE 3 – The 3 X rule

An HMO let by the room grosses three or more times the income of the same property let as a single let. This rule is a rough approximation. It does not apply to areas with high property prices, where the margin is far less but capital appreciation is awesome.

RULE 4 – No money left in

Cash release and no money left in.
HMOs can be valued on income i.e. the gross annual rent is multiplied by a factor of 6 to 1 times, sometimes more. This is known as the investment value or a commercial valuation. Which multiplier is used is down to the valuer. In areas of reasonably priced properties, this method of valuation will give a cash release as lenders will lend up to 70% of the value (sometimes more or less) resulting in no money tied up in the property and tax-free cash to spend! (Money released from remortgaging a property is treated as a loan and so not taxable).

A lot of people including mortgage brokers have difficulty in understanding or believing this rule, I have done this over 100 times and I am still doing it so I know it works.

RULE 5 – The rule of 5

The rule of 5.
Use the rule of 5, to assess whether to buy an HMO. But if the purchase price of the property plus the cost of improvements and other costs equal or are less than five times the gross rent. Follow this rule if you can and you will not go far wrong. Unfortunately, not everyone invests in areas of low-cost housing so to successfully invest in the right areas the alternative way to assess a prospective HMO is to do the income and expenditure calculations for the property very carefully.

Example: Property, when converted will house 6 tenants at £70 pw, gross rent £21,840 (6 tenants x £70 pw rent x 52 weeks in a year). I would not spend more than £110k (£21,840 x 5) on buying and refurbishing the property.

RULE 6 – Property doubles every 10 years

Property doubles in value every 10 years.
Property on average doubles every ten years, though the increase in rents is much slower. Property prices and rent are not linked. Is there any other business where the largest working asset cost is fixed when you buy it yet the income from and the value of the asset increases?

In twenty years a house brought for say £100k will be worth it if average price increases are maintained, which they have with a few exceptions consistently done since 1900 be worth £400k. If you assume rents have only doubled then you will have doubled your return and be sitting on a substantial increase in capital value. Reflect on this when the day to day niggles or worse get you down.

RULE 7 – Be professional

 

Keep it professional.
The next 4 rules and many of the other rules all have the same theme. You need to be able to stand back, detach yourself from it all, treat it all like a bit of a game otherwise it will chew you up and spit you out. I am not saying do not care or be concerned but if you let your emotions become too involved it will exhaust you and you are in danger of losing your cool.

Remember the numbers, you will lose some but take it as a percentage. X percentage of tenants will not pay or cause damage and the same goes for tradesmen etc. With careful management, you keep it to a small percentage so it does not matter. Look at it as a cost of doing business. Keep in mind the bigger picture, see Rule 6 & 20.

The people who rip you off today will be ripping others off in 20 years’ time and have nothing to show for it. Remember it was your own fault in using or choosing them in the first place. While you, on the other hand, will be extremely wealthy, even if you only have a few HMO Rules.

 

RULE 8 – Give Respect

 

Give respect – You will find it much easier to deal with tenants and others if you are nice to them even if they do not deserve it. Remember they are your customers. Do not expect respect in return and you will not be disappointed.

RULE 9 – Don’t play fair

Don’t expect fair play.
In nearly every other sphere of business if the rules were so one-sided there would be an enormous outcry against the unfairness of it all. Discrimination against landlords is rife and no one cares a dam. One of the largest landlord associations even appears to be campaigning for more action against bad landlords, yes I said ‘against’ landlords.

If a tenant wants to they can cause you serious harm and it is very little you can do about it. You are expected to and have to follow the law – if your tenants don’t there is little you can usually do, apart from evicting. There is no point in using a person who has no assets and the only assets most people have is property. As I said in rules 6 & 20 above keep your eye on the rewards in the future.

RULE 10 – Be nice

Be nice to tenants.
People are very reluctant to sue those who they like. To understand this concept I suggest you read Blink by Malcolm Gladwell. On page 40 of his book, Gladwell discusses the research done to identify which American doctors are sued. Analysis of malpractice lawsuits shows that there are highly skilled competent doctors who get sued a lot and doctors who make lots of mistakes and never get sued. Gladwell goes on to ask why this is and speaks to medical malpractice lawyers and they all say the same thing, which is, patients will not sue a doctor they like however incompetent.

RULE 11 – Be suspicious

Treat all excuses for non-payment as lies.
The exception is where a claim for Housing Benefit is now called universal credit is being made, below as it can take some time for Housing Benefit payment to be processed. With the rest of the excuses, they are lies. I can assure you that with over 20 years of experience this is inevitably the case so avoid the grief of believing tenants and then being upset when you discover you have been tricked. This brings me on to my 12th rule.

RULE 12 – Use a section 8

Serve Section 8 notice to evict, as soon as the tenant fails to pay.
Evicting tenants is a long-winded process and takes the same period of time if you start immediately or wait months! Don’t believe anything said about late payment of rent as rarely is it correct. Start the eviction process as soon as a tenant misses a payment. It may sound harsh but I can assure you from long experience that it is the best approach.

I have perfected a system that allows me to get a possession order against a tenant within 9 weeks of the first missed payment and I have now done over 350 evictions without failure. See my website www.hmodaddy.com for details on my DIY Eviction manual and courses.

It costs nothing to start the eviction process and you can stop the process at anytime. You can get a possession order and still allow the tenant to stay, especially if they start paying the rent and hopefully the arrears, though it is the exception for a tenant to improve their behaviour and pay off their arrears.
Remember Rule 10 and bear in mind Rule 13 so do it nicely. When I serve an eviction notice I am very careful how I go about it and make it look like I am doing the tenants a favor. I often get thanked when I serve an eviction notice.

RULE 13 – Retaliatory complaints.

Take great care when serving eviction notices as all the promises and excuses about going to pay the rent, which is rarely true, at that point go out of the window. The tenant will then say the reason they have not paid the rent was due to them having had an accident due to some defect in the premises which they have continually complained about but for which you have never ever heard about or faults in the property which you know nothing about but again they say they have complained to you about it ‘for years’!
To avoid this or reduce the likelihood of it happening I use a Late Payment Statement where the tenants signs to say they are in arrears and the reason(s) why along with an opportunity to identify faults or defects. A copy is available in my Forms, Agreements and Letters pack CD/USB only available from www.hmodaddy.com

RULE 14 – Keep goof records

To have a hope of defending yourself in court against a judiciary that is generally hostile towards landlords, you need to have good record keeping. Firstly, ensure all complaints are logged with time, date and details. Take and keep photographic evidence with a date stamped camera, preferably with the tenant present where appropriate. Patience, tact, and negotiation are the tools you need in this situation. NB the time is not relevant but it seems to impress judges.

I use a Late Payment Statement (available in my Forms, Agreements and Letters pack CD/USB only available from www.hmodaddy.com )which the tenant completes and signs to say why the rent is late and acknowledge they are in arrears and give the reason(s) why along with the opportunity to identify any faults or defects. Too often when I get to court the story changes, the favourite is that they did not know they were in arrears or they had paid. If the tenant admits in writing at the time what they owe this reduces the likelihood of them denying they owe rent and their credibility should they do.

RULE 15 – Tipping Point

Prompt and firm chasing up of rent payments will go a long way to reduce bad debts. I estimate those bad debts could be reduced by 80% by acting firmly and quickly. Once a typical HMO tenancy agreement is allowed to get over £500 in debt, this is the tipping point, there is little chance they will pay the arrears and they often just leave when chased for payment.

RULE 16 – Believe in yourself

You will need this in enormous scoops. Most people have difficulty in believing in themselves so if you are like the rest of us you just need to work on excelling in this area. If you do not believe me regarding how insecure we all are then I suggest you attend one of the personal enlightenment courses. Choose who you think is a confident person, sit next to them and don’t be surprised that before day 3 you will be holding them while they sob their eyes out telling you how inadequate they are.

My point is do not rely on anyone. Do not seek the approval of others and make your own decisions. If the property was such an easy idea everyone would be doing it so expect more than a fair share of negativity. Your family, friends, and colleagues may be your life but they are very unlikely to support or approve of you being a landlord unless they are landlords themselves and maybe not even then. Be careful of professionals and be under no illusion that councils are there to support or help you. From long experience I can assure you, you are well and truly on your own in this business. Don’t look for understanding from anyone apart from your dog or cat! RULE 17:
Do research carefully- If you talk to landlords assess very careful what they say. They are unlikely to say go for it.

There are a number of reasons for this including:
• Most are selfish and do not want to give anything away
• They are fearful of competition
• They have had what they feel is a bad time
• They rarely have much of a clue of what they are doing!
The questions amongst others to ask are:
• How long have you been operating HMOs?
• What did you buy the property for and what would it be worth today?
• What proportion of tenants: – don’t pay, cause problems, go to councils, etc but don’t expect them to be able to work this out as they are probably innumerate.

A typical conversation I have had with an HMO landlord goes a bit like this:
Question: Do you have any HMOs?
Answer: I used to have an HMO but I got rid of it because I got fed up with tenants not paying, damaging the property and complaining, etc.
NB: You need to go on and ask more questions such as:
Question: What did you buy the property for?
Answer: It was in the nineties and I inherited it then after a couple of years I sold it.
Question: What would it be worth now?
Answer: I hate to think, about at least 4 times more than what I sold it for.
Question: What would be the rental income?
Answer: I could retire on the income if I had kept it!
The point I am making is that without intelligent questions you would probably have come away with the impression that having an HMO was loads of problems without understanding the benefits.

RULE 18 – Do not delay repairs

Do not delay dealing with repairs, tenants abandonment, and late payment.
A landlord is in a service industry, you need to look after your tenants. Try and avoid comparing yourself with the social sector, they protect their own and look down on the private rented sector. Look at the social sector service targets for doing repairs online, it takes them months to do things.

Do what you can as quickly as you can, otherwise, delay will become a habit. Some tenants will appreciate your prompt service while others not. You can never please everyone! Some will use any excuse to refuse to pay rent so try and avoid this by acting promptly with repairs.
The same goes with late payment unless you show concern about payment a significant number of your tenants will not. NB remember Rule 14 and keep good records of your actions.

RULE 19 – Use 3rd party authority.

I will have to ask the boss.
Use the excuse you have to consult with your partner/husband/wife etc. as a barrier to give yourself time to think, especially when letting. This is an intuitive business. At the upper end of the market, you can rely on references, guarantors, etc but most of us have to rely on intuition which is disregarded in this educated rational world.

You need to get your intuition up and working again. Our ancestors very quickly had to assess friend or foe, yet we debunk this skill. Sometimes it takes a bit of time to assess a person or situation so do not rush it. Give yourself the luxury of time to think and talk it over. You will often be surprised when you think over what would initially be a reliable prospective tenant that things do not add up.

RULE 20 – The 20-year rule

After twenty years the original purchase price of the property will be equal or thereabouts to the initial gross rent.
For example, a house purchased in 1994 for £30k and turned into an HMO will produce a rent of about £30k per annum today as an HMO. It is rental growth like this which makes this business so good but emphasises that it’s a long term business and not a get the rich quick scheme.