Should I turn my let property into an HMO?

Posted: 14th Aug 2017

Some buy to let property is especially suited for use or for conversion into dwelling units comprising bedsits or bedrooms, for tenants prepared to share facilities such as a kitchen and bathroom and toilet.

From the landlord’s point of view, space in the property is maximised, fewer facilities need to be installed than in self-contained apartments and more tenants may therefore occupy the let property. From the tenants’ point of view, this typically results in lower rents.

Given that evident market appeal, therefore, is there a case for converting your property into an HMO?

Definition of Houses in Multiple Occupation

This type of let property is formally defined as a House in Multiple Occupation (HMO) – and, as such, imposes upon the landlord particular obligations and responsibilities and requires a purpose-designed form of let property insurance specifically intended for landlords of HMOs.

An HMO is a property in which:

  • three or more unrelated individuals live as at least two separate households (three single people, or a couple and one single person, for example);
  • the three people or more who live there share certain basic facilities, such as a kitchen and/or toilet and bathroom;
  • if the property is spread over three storeys or more and has at least five individuals living as more than two separate households, all of whom share some of the basic facilities, the dwelling is defined as a large HMO.

Converting your buy to let property

One of your first considerations is whether the property itself is suitable for conversion into an HMO – some are, some are less well suited to such use.

Some letting agencies, for example, suggest that new or fully-modernised buildings are likely to serve as HMOs – and be easier to service and maintain – than older conversions, requiring more frequent repairs.

An HMO is also likely to offer more basic, functional accommodation – simply decorated in neutral colours, plainer furnishings and hard-wearing floor coverings.

The environment in which an HMO is situated is likely to prove less important when marketing the tenancies than when looking to let fully self-contained dwellings, flats or apartments.

Your market

In other words, deciding whether to convert your property into an HMO depends on your being able to identify a suitable market.

Affordable rents are likely to be more important to your tenants, rather than an especially high standard of furnishing, decoration or neighbourhood, although access to centres of activity for jobs and shops is likely to be important.

HMOs are typically attractive to money-conscious students – who are going to be looking for quick and easy to access their university or college campus – and the unemployed or those on benefits.

When letting an HMO, therefore, it is more important than ever to conduct thorough and rigorous background and credit checks on potential tenants.

Your obligations

You also need to take into account the additional responsibilities and obligations you have as the landlord of any HMO:

  • these include a set of requirements common to landlords of any let property, but additional ones that form part of the licence you may require from the local authority when registering the HMO – some standard HMOs and all large HMOs require such a licence;
  • therefore, an annual inspection of the gas installation and its appliances must be made by a registered Gas Safe engineer;
  • you must give a copy of the safety certificate he issues to your tenants;
  • you must ensure that the electrics are safe and in good working order – sockets, fittings and appliances – so may need to carry out periodic inspections to confirm that this is the case;
  • given the life and death importance of fire safety, you must abide by any local and national fire regulations concerning exit routes and ensure that smoke alarms are fitted on every floor of the building and carbon monoxide detectors are in any room where there is a solid-fuel fire;
  • you may ask your HMO tenants for a deposit – against possible breakages and damage – at the beginning of the tenancy, but the money must be placed on deposit with an approved third party in compliance with the official Tenancy Deposit Protection scheme;
  • tenants of an HMO also need to prove that their immigration status gives them a right of residence in the UK and the right to rent your accommodation (in England) – you or your letting agent must keep records of your having made those checks.

Before deciding whether to turn your buy to let property into an HMO, therefore, it is essential to consider its suitability as an HMO, your likely market for tenants, and the raft of special responsibilities and obligations you are taking on.