What is an house of multiple occupancy or HMO and why should we be thinking about them as part of our buy to let side hustle strategy?
House of Multiple Occupancy or HMO
A house in multiple occupation (HMO), or a house of multiple occupancy is the British English term which refers to residential properties were ‘common areas’ exist and are shared by one household.
Most HMOs have been subdivided from larger houses designed for and occupied by one family.Wikipedia
How does the government define an HMO.
When at least 3 people who are not from 1 household rent a property, it is house in multiple occupation or HMO. An example of a household is a family. The households in an HMO share facilities like the bathroom and kitchen. People sometimes call this a ‘house share’.
Are the rules different?
If you want to rent out your property as an HMO in you must contact your council to check if you need a licence.
You must have a licence if you’re renting out a large HMO in England or Wales. A house would be defined as an HMO when the all of these statements are true.
- it is rented to 5 or more people who form more than 1 household
- some or all tenants share toilet, bathroom or kitchen facilities
- at least 1 tenant pays rent (or their employer pays it for them)
You need planning permission to convert a house into an HMO. This is because converting a house to an HMO is a material change of use.
Landlords of large HMOs must meet certain standards. Local councils are responsible for enforcing the HMO standards. They can also take action to correct any problems.
Standards and obligations
The extra responsibility of HMO landlords include proper fire safety measures in place including:
- working smoke alarms
- annual gas safety checks
- electricity safety checks every 5 years
- not overcrowding the property
- ensuring there is the right number of cooking a bathroom facilities for the number of people living there
- making sure that communal areas in shared facilities are clean and in good repair
- making sure that there enough rubbish bins
What makes a house of multiple occupancy or HMO a good buy to let property?
Despite this, HMOs are a popular is a buy to let investment. Many people believe that HMOs have higher income generating potential than an ordinary buy to let property. This is because a Landlord can let out each bedroom on a separate tenancy agreement. Landlords can also reduce their exposure to loss of earnings through rental arrears or void periods.
The down side
Many buy to let mortgage lenders refuse to finance HMO properties. As a result, there is a specialised HMO mortgage market by smaller subset of lenders. The criteria restrictions on the loan to value ratio is lower than an ordinary buy to let mortgage but the minimum property value tends to be higher.