An HMO, also known as a house of multiple occupation, is a tenancy where three or more tenants who aren’t from the same household live in a property and share living facilities such as the living area, kitchen and bathrooms. Over the years, HMO lets have become a popular option for landlords, thanks to the higher yields typically achievable with this type of tenancy.
Landlords can charge per room or command a higher monthly rent from a group of sharers, meaning there’s the potential to earn more. But with higher yields comes greater responsibility, especially when it comes to managing the property. Here, we’ve got everything you need to know about HMO property management so you can make an informed decision about investing.
Decide on the tenancy type
With an HMO, the landlord can decide to let each room instead of the whole property. When it comes to drawing up the tenancy agreement, therefore, there are two different options available. Both of them use an Assured Shorthold Tenancy (AST) but the relationship between each tenant and their respective liability is different depending on how the landlord chooses to proceed.
Separate ASTs for individuals
Using a separate AST for each individual that means each tenant has a tenancy agreement with you for the room they rent. It creates an AST for a specific room in the property, while also giving the tenant the right to use and access the communal parts of the home. It also holds them solely responsible if they break the conditions of the agreement, and they are only liable for their own monthly rent.
A joint AST for a group
Often found in student lets or where friends live together, a joint AST means tenants are jointly and severally liable for both the rent and care of the property. For example, if one tenant doesn't pay the rent, the others must make up for the shortfall. If one tenant from a group leaves, the remaining tenants are usually responsible for finding a new renter. Group tenancies often work better if the tenants moving in already know each other.
Applying for the required licences
Some HMOs need a licence; others don’t. This is often one of the trickier parts of operating a HMO property, as it’s dependent on the number of tenants and the local authority area where the property is located.
You will need to contact the council to see if a licence is necessary if the property has fewer than five tenants. Some councils may require a licence, while others don't. If the property has five or more tenants, it's classed as a 'large HMO', which means it requires a mandatory HMO licence by law.
Licencing costs depend on the council. For example, the standard HMO licence in the London Borough of Harringay is £1,100 split into two separate payments. Or £1,100 plus an additional £50 for every tenant if it has more than five.
Furnishing an HMO
Landlords aren’t legally required to furnish their HMO, but you will increase the chances of getting a good price and quicker let significantly if you include furniture. That’s because tenants don’t tend to stay in HMOs for as long as conventional lets and prefer furniture included for the sake of convenience.
If you furnish the property, you’ll need to think about all the rooms, including shared areas like the kitchen, bathrooms and reception room. Items you might want to consider include:
- Bedrooms – bed, mattress, wardrobe, drawers, curtains.
- Kitchen – Fridge/freezer, storing area, oven, hob, washing machine, drying facilities, microwave
- Reception area – table and chairs, sofa, TV, storage
Every item provided should account for the number of tenants living in the property. If you have six renters moving in, you'll likely need two sofas in the reception area and, of course, six beds in the house. Also, bear in mind that HMOs are more susceptible to wear and tear as the furniture is used more frequently.
Enhanced fire safety requirements
Before letting your HMO, you’ll need to ensure it meets enhanced fire safety requirements. HMOs fall under The Housing Act of 2004, which includes Health and Safety Rating System (HHSRS), licencing for HMOs, and management regulations for HMOs.
The property will also need to undergo a fire risk assessment and must have the following:
- Fire extinguisher.
- Fire doors.
- Escape windows.
- Escape routes.
- Clear signs pointing to the exit.
- One and two-storey properties need a Grade D fire alarm on each floor.
- Three stories and up require a Grade A alarm on each floor.
- Emergency lighting on each floor.
- Fire blanket.
Failure to comply with these requirements could result in a hefty fine or a jail sentence in the worst-case scenario.
Finding the right tenants
Landlords tend to list their single rental property with a letting agent, who then advertises it on portals like Rightmove and Zoopla. You can also do this with a HMO, but there are other – and sometimes faster – ways to source HMO tenants.
Other options include:
Posters at universities
HMOs are popular with students, and many landlords purchase properties close to a local university to tap into the student market. Therefore, you might have some luck advertising at the nearest university if it’s possible to do so.
Ask existing tenants
If you already have an HMO up-and-running, you can ask existing tenants to help you find a new one. Tenants may know people who are looking for a room, meaning this route can be a faster way to letting available spare rooms.
Use a proptech alternative to traditional agents
Proptechs are far more in tune with modern marketing methods than traditional brick-and-mortar agents, and a hybrid service such as Home Made will work actively on your behalf to secure leads in a way you wouldn't experience with online DIY portals.
For example, in addition to advertising on all of the major online portals, our in-house growth marketing specialists also drum additional enquiries using more than 45 different demand-creation channels, including secondary portals, our own database, and much more.
Everyday HMO management and the problems it may pose
HMO property management differs from a conventional let. If you’re letting an entire property to one person or a couple, the range of problems you're likely to encounter is far narrower, and there’s unlikely to be any issues between tenants. With a HMO, however, a higher number of tenants, particularly if they don't know each other prior to becoming roommates, can equate to more problems. For instance, you might find more disputes between tenants that you are required to mediate.
An HMO property is also susceptible to extra wear and tear, as there are more people using the furniture. Therefore, you should be prepared to replace items at a higher frequency than you would with a traditional let. You can claim back the money on like-for-like items on your tax return with Replacement Relief.
Best tips for routine HMO maintenance and property management
Whether you hire a property management company or handle everything yourself, a HMO often requires more of your attention. Consequently, it should be run even more like a business than a conventional rental property.
You can leave a welcome pack in communal areas, providing new tenants with key contact information about the property and local area. You should also be proactive about maintenance and repairs, attending to the property regularly to see if issues need resolving.
Being proactive rather than reactive with maintenance can help prevent problems that may end up costing large amounts of money if they're left unattended. Having a lead tenant can also be helpful as it gives you a point of contact, which can be easier than taking repair requests from multiple tenants.
Whether you're running an HMO or a conventional let, at Home Made, we offer hassle-free property management services including everything from rent collection and emergency works management to marketing your property and finding you great tenants — head to our landlord page to find out more.
At Home Made, we offer a hybrid lettings solution that adds value at every stage of the rental process. With our proprietary technology and data-driven marketing processes, we can help you to achieve higher rental yields and significantly lower operating costs, all while providing exceptional customer service that improves the rental experience for all stakeholders.
Our median time-to-let from point of listing is just 8 days and our clients save an average of £2,300 per tenancy with us. We charge 3% plus VAT for tenant-find services, 4% plus VAT per month for full management services, and there are no fees for renewals. For more information on our services, visit our landlord page.Book valuation