Posted: Tuesday 27th November 2018
Property conversion is among the most popular investment projects related to transforming old or limited in size property into a modern and more efficient product. Projects like these tend to provide a higher financial return for investors and contribute to society as they usually offer an enhanced solution to residents.
We have already discussed the benefits of property investment in previous blog post articles and have shared the various ways, in which this journey can make you a wealthy and profitable investor. To quickly recap, investing in property is among the most common areas of investment by professionals as it is a great source of ongoing income. Especially if the investor has spread his eggs in several baskets rather than one, investing in property will certainly help your bank account grow.
Another area we have touched on previously is the field of Houses of Multiple Occupancy, also referred to as HMO. In this article, we will continue what was started but will dwell a little bit deeper into the concept of HMO and take a look into how we can convert our property into HMO. We will discuss the requirements and necessary licensing in order to turn your existing property into a House of Multiple Occupancy to maximize the return on your investment!
The UK Government defines HMO as “a property rented out by at least 3 people who are not from one household but share facilities like the bathroom and kitchen”. HMOs can also be referred to as a “house share” and are extremely popular for the UK, especially in cities like London, where a large number of students, working professionals, and young families share a house with three, four, five, six, or more bedrooms.
From an owner perspective, if you are an investor who is looking to rent out the property as an HMO in England or Wales, there are a set of requirements and licensing to obtain in order to gain legitimacy and the right to call your property House of Multiple Occupancy.
The Government has provided a comprehensive and easy to understand HMO guide for landlords and managers who are interested in fully understanding the concept and work with HMO properties.
HMO properties provide a number of benefits, both for the investor or owner and the tenants, which will be occupying the property.
Recent information from the property market in London suggests that rental growth has slowed down. However, the interest in HMOs has not and it remains a lucrative area for investors. According to research, 40% of England’s total HMO market is situated in London. Investors may choose to add HMOs to their portfolios to:
On the other hand, individuals looking to rent living space can benefit from an HMO in terms of:
As great as the picture may seem, don’t be quick to assume that converting your property to an HMO will be a piece of pie! HMOs are highly regulated and require licensing, which gives owners the right to operate such a property. The requirements may vary across different local regulations and it is extremely important to do your research prior to indulging in HMO property conversion.
As tempted as you may be, arrange a consultation with a professional or expert in real estate or property consulting to get a full picture of the requirements for an HMO conversion and all necessary documentation that you will need. As an investor, you can work solo in finding this information but it may require a longer period of time and more effort.
Just like any other project that requires an investment, there are a certain set of requirements that need to be met in order to successfully convert a property into an HMO.
For starters, investors or property owners will need to obtain an HMO license in order to officially possess and manage a property that falls under the HMO category.
The British Government has segmented HMO licensing into two separate sections – mandatory licensing and additional licensing. The mandatory licensing is required from all HMOs who have three or more stories and accommodate five or more people from at least two separate households.
Additional licensing refers to other category licensing required by different councils in cases where there is evidently poor management of the HMO by its property manager or owner. The expert advice is to always check with your council if you are considering investing in a property that you are looking to convert into an HMO to gain full information on the requirements that must be met.
An HMO license is received by your local council via an application form. In order to apply for an HMO license, you must ensure that the property is suitable for the number of tenants that you are looking to rent out to, depending on size and other factors, such as a number of bathrooms.
In addition, the history of the manager of the house will be examined. Regardless of whether you will be individually managing your property or you will be working with a professional agent, the person in charge should have a clear history with no criminal records or any issues with landlord laws or the code of practice.
Furthermore, as listed in the government’s description of HMO property and its requirements, the council will require an updated gas safety certificate every year after receiving your license, in addition to the installation and maintenance of smoke alarms and safety certificates of the electrical appliances in the property.
In other words, you must ensure that everything is legit and updated in your HMO in order to avoid trouble with the council and limit the risk of getting your license suspended.
It’s important to note that HMO licenses expire after five years and must be renewed before expiring. In addition, a separate HMO license is necessary for every HMO that you own and manage.
Applying for an HMO license is easy in the sense that full details are provided by the government and can be requested from your local council. However, if you are a busy investor and run a number of projects in your portfolio, you can always partner with a professional, who can send licensing applications on your behalf and help you manage your property.
The cost of applying for HMO licensing will vary depending on the location of the property, its size, number bedrooms, and even the application method. For instance, a fee for a new license for up to five units of accommodation can be £1,202. The renewal fee for a property of the same size can be up to £1,028. There are additional fees that may be related to inspections or recoveries.
Researching whether you will need Planning Permission for your HMO is essential as lacking one when requested may result in fines of up to £20,000.
Usually, a Planning Permission is not required when converting a dwelling house to an HMO. However, changes made in 2010 suggest that if the council chooses to enforce an Article 4 Direction to the rights, then changing from C3 Dwelling House to C4 HMO will need planning permission.
To add a bit of explanation to this terminology, C3 or Dwelling House/Flat is a classification of a home used by a single person or single family, while a C4 or HMO is a shared house, including up to six unrelated persons.
Simply put, if there is an Article 4 Direction valid in your area, then you will need Planning Permission for your HMO. To avoid being subject to fines due to a lack of information, get in touch with an expert who will help you get through the process of converting your property to an HMO!
As we already mentioned, HMOs are extremely popular in London and other parts of England. What investors must be aware of is that from March 2018, the Government announced the Licensing of Houses in Multiple Occupation (England), and an extension of mandatory licensing requirements and procedures were added in October 2018. Under the announcement, a larger number of properties will require licensing before being legitimately let. The HMO market is not expected to slow down as a result of the changes but investors and property managers will need to be more careful regarding the required documentation and authorization to run these profitable properties.
If you have found that your property is not generating enough revenue for you, then considering a conversion to HMO is a brilliant idea, which will help you improve your portfolio and generate more wealth. However, it must be noted that just like any other investment project, HMO has its own diverse set of rules and expectations. Failing to meet these may seriously affect your bank account as there are substantial fees and punishments involved in failing to meet government requirements for HMO properties.
Get in touch with an expert from our team and have a consultation regarding HMO projects. Gaining an understanding of what their true nature is the first step of a few to make your investment in HMO profitable and satisfactory!