How to convert a property into a HMO? – 5 Steps to consider
A property that is classified as a House in Multiple Occupation (“HMO”) is generally defined as a property which is let by three or more tenants who are un-related. The exact stipulations vary from council to council but generally the consensus is very similar. Many landlords see this as an excellent way of obtaining a high yielding investment and consequently being able to obtain a high return on investment as you are able to collect rent from a higher number of tenants. However as a landlord/investor you have to ensure that the location and the property itself are right as that will decide whether it would be a successful HMO or not. As a strategy having a HMO is a good product as you are giving your tenants an alternative to renting an entire house or apartment. Allowing them to utilise their other income on leisure or saving a deposit to buy their own property.
- Speak with your council
There are national standards and regulations that have to be adhered to across the country with HMOs however some councils are different in terms of their definitions of what is a HMO and it is recommended to always speak with your council and in particular your HMO officer. Generally you would be required to obtain a license if your property is let to five or more tenants from more than one household, is at least three storeys high and the tenants share a toilet, bathroom or kitchen facilities. Speaking with the HMO officer will allow you to ascertain what the requirements are, and obtain advice if you have a particular property in mind that you are deciding to purchase. The HMO officer can indeed provide some good advice in terms of layout and what you could potentially do. If you build this relationship from the start you will find that obtaining the license would be more comfortable as you are keeping the council in the loop and know you are very much meeting compliance with the property being considered as a HMO.
- Planning Permission
Depending on how much work will be required in converting the property into a HMO you may need planning permission to carry out the changes. This may be based on your area as a number of areas are having Article 4 directions put in place which in essence means if you intend to change the use of the property from a single dwelling then you would need to seek permission in order to do so.
- Consider your target tenants
As you have now undertaken your background research in terms of speaking with your council and seeing whether you require planning you need to now consider what your tenants are going to need and how much space they will require in addition to the furniture that would be required and the level of appliances you are considering to instil.
- The layout
It is likely you will be converting the use of some of the rooms. For instance spare rooms may potentially be converted to additional bathrooms and reception rooms to additional bedrooms. You may also potentially need to move or construct walls in order to alter room sizes – these are all aspects you will need to consider carefully before undertaking. For instance you would look to convert the reception rooms but this is not always the right approach. In the ideal scenario you would have two reception rooms one of which you can convert into a bedroom and the other can remain as a communal area.
- Void Periods
A difference between a HMO and a standard single dwelling is you are likely to have a higher turnover of tenants. Therefore it is advisable to put aside at least two months worth of rent each year to cover potential void periods. So ensure you are prepared for potential unoccupancy and have a system in place to keep yourself secure and not to overstretch yourself.
In essence you need to ensure you have a good plan and overview of what you intend to do with the property whilst ensuring you have a good relationship with the HMO Officer so you are aware of the regulations and stipulations enforce in your area.