What is HMO Management?
HMOs are a potentially lucrative business model for landlords. Rental yields for an HMO are typically higher than for standard family properties, but they are a little harder and more time consuming to manage.
WHAT is an HMO?
HMO stands for a House in Multiple Occupation. The legal definition of an HMO is a house rented by 3 or more people from 2 or more households. A household is defined as either a family or a couple (married, unmarried, civil partnership).
3 tenants – A couple + 1 friend… HMO
4 tenants – 2 couples… HMO
5 tenants – Friends living together at Uni… HMO
HMOs can be rented in different ways too. Some are rented by the room (on single room contracts) whereas others are rented to an entire group (on a standard house contract with multiple tenants). Different rental methods have different implications for the landlord, for example, if you rent by the room you will need to pay council tax and it is very common that you will offer bills all rolled into the price.
WHO would live in an HMO?
Anybody! Although who might live in your HMO will depend on the type of property you are creating and the area it is in. Some HMOs are extremely high end (often labelled co-living) and positioned as a lifestyle choice for working professionals; other HMOs are “student digs” and are lived in by university students; others might be aimed at contractors/blue collar workers in the local area and of course, you have social housing properties rented to council tenants or social housing companies.
WHERE would you have an HMO?
Like all property models, there are places where HMOs work best and places where they don’t. It will usually come down to tenant demand, population density and local amenities. If there is sufficient demand and good transport links, an HMO will usually work. Near big employers, city centres and universities are great places for HMOs.
WHY invest in HMOs?
HMOs are one of the higher cash flowing property models, which make them attractive to investors. In fact, one HMO can yield as much as several single or family lets.
By taking a 3/4 bed family house, refurbing it and renting it to 5/6 individuals you can create more rental income from a single building. If you get it right, your HMO can return £1000-£2000 net per month and be relatively stress or hassle free.
However, as with all the high cash flow models, they come with increased risk, increased costs and if you manage them yourself, they require more time than a standard family let.
When executed correctly, HMOs are a brilliant property model creating great returns and maximising a portfolio. When done badly, they can land you with £10,000s of fines, council investigations, armed police raids, personal threats, and very costly voids/arrears!
Pros
Unless you have a lot of time on your hands and understand the complexities of HMO compliance, you will probably want to go full management on this property type. HMOs are compliant heavy beasts and the management of them is time consuming. In terms of your choice of agent partner, it is also advisable to choose a specialist hmo management company, as they are different, in many ways, to single lets. There are some great hmo management companies out there and a conversation with them, should help you make an informed choice.
Cons
When managed badly or, without the correct compliance knowledge and implementation, they can cost you tens of thousands of pounds and land you in hot water. Also, with a greater number of tenant change overs, the wear and tear can be greater too. They are a more complex property model, attracting a specific tenant type and, therefore, may not work in some areas.
Cost
Due to the time involved to manage, most agents will charge more for the management of an HMO. We charge 12% plus VAT, with discounts available for portfolios landlords. Different agents will have different fee structures, we have chosen ours to reflect the time spent and the level of complexity involved.
Us versus our Competitors
KPA Property are specialists in HMO management. There are some great specialist HMO managers out there and we strongly suggest that you choose a specialist to manage your HMO, because they are very different to other property types. The relationship with your agent is a partnership and there is nowhere that this statement is more evident than with HMO management. Do some research of your own and have some conversations with various agents before you make your decision. When executed correctly, HMOs are a brilliant property model creating great returns. When done badly, they can land you with £10,000s of fines and in some very hot water!
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As Landlords and Investors ourselves, we can help and advise on all aspects of your portfolio. If we can help you then give us a call on 0117 440 6789 or email us here together we can make being a landlord simple, passive and stress free!
