Some landlords have tenancy agreements in place with one person only, however, that particular person might come with a family of four, thereby, leaving that one particular person responsible for paying the rent to the landlord.
Progressively, the more experienced landlords are making the most of the current market by raising the overall rent earned from a property by renting to individuals or households living in the property separately. This is also known as a HMO, (Houses in Multiple Occupation).
A HMO is when separate tenants have private access to their rooms but share part of the accommodation, such as the kitchen or the bathroom. Examples of a HMO include house-sharing or student shared accommodation.
When it comes to being a landlord and dealing with an arrangement like a HMO, it becomes slightly more complex to manage. HMO’s tended to require a license from the local authority and generally incurs higher maintenance costs for landlords.
Government regulations state that a HMO is at least three tenants living in a house separately, sharing a toilet, bathroom or kitchen facilities. However, these regulations often change from Council to Council.
Due to the increase in the rental market, tenants are more than likely looking for shared accommodation due to the slightly cheaper price per room, rather than a flat or a house. Therefore, landlords are taking this opportunity to convert a family home into a student home or HMO, as the yield is much greater than a house with multiple occupants.
Landlords have targeted student homes as they are receiving a much higher rent per room than they would if they were to rent the house as a whole.
Emma Cox from Shawbrook bank commented on the fact that because of the popularity and increase of purchasing student homes and HMOs, the less experienced landlords are over-estimating the profitability.
Cox stated: ‘One of the biggest headaches we see for investors is when they combine the “wrong” tenants which can lead to conflict and a serious escalation in management costs. The less-experienced landlords may not be experienced in the management of HMOs and may not understand the operating costs and time involved.
There are legal requirements that landlords with HMOs will have to abide by to ensure the property is safe and must also adhere to a strict set of guidelines.
A landlord must ensure the gas safety checks are carried out regularly and that there are adequate shared facilities for the tenants, for example fit-for-purpose washing facilities and a kitchen that is in a good state of repair. If for any reason as a landlord, you do not think this is the case with your property, you will need to address this before turning it into a HMO.
The landlord will also need to check whether the property requires a HMO licence with the Local Authority, as the cost of which depends on the size of the property.
The landlord will also need to look into building regulations for HMOs and how they will need to adapt their property. This will then lead the landlord to question whether it is financially viable to switch a property from a shared house to a HMO, as there are some quite onerous regulations around HMOs. It is also essential that the landlord speak to their mortgage lender to check whether turning the property into a HMO would be a breach of the mortgage terms/conditions.
If the landlord does not have a licence, hasn’t applied for one or has not been temporarily exempted from licensing, then there are serious consequences the landlord can face.
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