Many people believe HMO’s are the domain of students only. On the contrary, HMO’s are becoming more and more popular with young working people due to the lower cost of accommodation, as well as having the appeal of a bills inclusive rent. They are also a fantastic way of meeting new people too. Being offered furnished and bills inclusive, HMO’s make for hassle-free living for tenants. We often find HMO’s are a perfect choice for young people starting out in the career and especially if they are moving to Leeds and don’t know many people in the area. Many of our tenants make good long term friends in their shared homes.
HMO’s are attractive to investors too due to the fact they can offer much higher yields than single let properties. Rooms are often let to individuals rather than the whole property being let as one unit, in order to maximise yields.
That said, management is more intensive and there are many complex regulations that apply to HMO’s that do not apply to single let properties. There is also a higher turnover of tenants, and there can be more wear and tear on the property. It is for these reasons that many landlords, and indeed many Letting Agents, stay away from HMO’s.
Investors who target HMO’s generally don’t attempt to manage their own properties due to the time and complexity. They realise their time is better spent on more important things and usually outsource management to an agent that has expertise and knowledge in this area.
Mortgage Lenders are often more cautious when it comes to offering finance for HMO mortgages. Landlords/Investors usually need experience of owning a HMO in order to pass the lenders criteria, and rates are often higher than standard Buy To Let mortgages.
Landlords looking to buy or rent out their properties as HMO’s need to be mindful of the widespread Article 4 Direction in Leeds. Article 4 has been implemented in order to restrict the number of HMO’s in certain areas. This is for many reasons which include controlling the volume of occupants in an area, noise, parking, refuse, potential of anti social behaviour, and so on. Most of Leeds falls within the Article 4 area, the map of which is available on Leeds City Council’s website. That said Article 4 is more heavily controlled in and around LS6 and the traditional student areas, than any other parts of Leeds.
Landlords looking to let their properties as a HMO will need to apply for change of use, unless there is already constant historic evidence that the property has let been let as a HMO since the restrictions were brought in.
Some HMO’s also require a license. The circumstances of which properties will require a license are complex, however as a general rule if the property is to be let to 5 unrelated sharers or more and the property has 3 storey’s or more, then it would generally need a HMO license. In order to obtain a license, the property would need to ensure it has the correct features which often include a hard wired fire detection system, fire doors, and interlinked smoke detectors with battery back-ups. HMO licenses also fall into different category’s. In general terms, the larger the property, the more restrictive the terms of the license will be. HMO’s must have Electrical Periodic tests carried out routinely as well as routine testing of fire safety equipment.
Every property is different therefore to establish exactly what upgrades you would need to comply with licensing, you would need to take advice from the HMO team at Leeds City Council.
Smaller HMO’s usually do not need a license, but are still subject to planning approval for change of use. A property is classed as a HMO if it is let to 3 or more unrelated sharers. This would be defined as a HMO in the council's eyes for planning whether the 3 or more unrelated tenants were on one tenancy agreement (with joint and several liability) or if they are renting a room each on individual tenancy agreements.
Clearly this is a more technical area than buy-to-let, however understanding it can be lucrative for investors.
Do you want to know more? We have written a number of helpful articles, which are published on our blog page, which cover some of the common questions we receive from investors. You can read them by following these links:
- 'Understanding How To Invest In HMO's'
- 'How To Get Planning Permission (in an Article 4 area)'
- 'Overcoming challenges to HMO investing - Regulation'
- 'How To Get A HMO License in Leeds'
- 'Government Extends Mandatory Licensing Of HMO's' (December 2016)
We have a number of years experience managing HMO’s and we are placed perfectly to guide you further.
For more information on this complex area, or if you are considering buying or letting a HMO, give us a call today on 0113 357 2261 so we can show you we can help you to get a fantastic return from your HMO.