A Beginners Guide to HMO Investment

Posted by The Landsite on 21st June 2023 -

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What are HMO's and is it a good idea to invest in them?

Firstly, we need to establish what the the term HMO means. Housing of Multiple Occupants (HMOs) can be determined by properties that are occupied by three or more people who are not from the same household and share basic amenities.

HMOs include a variety of properties such as:

Shared houses, flats, and bedsits
Some B&B establishments
Hostels
Guest Houses
Houses to let lodgers
Residential care homes

What are the shared facilities in HMO's?

Shared houses and flats most commonly include communal living spaces and multiple bedrooms, and shared kitchen and bathroom facilities.

What types of buildings are exempt from the definition of HMO?

A building occupied by the resident landlord with a maximum of two other persons who are not part of his or her household.
Those occupied by no more than two persons.
Buildings which are already regulated such as care homes etc (definition can be complex and domestic refuges are not exempt).
Buildings owned or managed by a local housing authority or a registered social landlord or public body ie. police or NHS.
Schedule 14 of the Housing Act 2004 lists all the exemptions.

Why Invest in HMO's?

From an investor perspective, HMO's are becoming an increasingly popular investment option offering a higher rental yield compared to other types of property investment. There are several factors why this is the case, the first of which is that the rent is spread across multiple tenants and is not reliant on one sole tenant. Additionally, the demand for HMOs is often high in areas with a large student population, ensuring a steady stream of potential tenants. There is also a growing demand for affordable housing throughout several cities overseeing major regeneration and development projects. Furthermore, the rental income from HMOs is generally more resilient to market fluctuations as tenants are often tied into fixed-term contracts.

However, arranging HMO finance can be more complex and larger properties may require a commercial mortgage. HMO properties tend to require more management and maintenance to be carried out compared to standard rental properties, so it is important for investors to consider the associated costs and workload involved.

Why do I need a license?

As a property owner or landlord letting out properties with five or more occupants from two or more households, you will need to seek a mandatory HMO license. HMO licenses ensure that properties meet specific safety standards and have adequate amenities for the number of occupants. Landlords must also ensure that all regulations regarding fire safety, gas safety, and electrical safety are up-to-date.

The license is valid for up to five years and can be renewed upon expiration. Failure to obtain a license for a mandatory HMO can result in fines and legal action. Local authorities also have the power to introduce additional licensing schemes for smaller HMOs that may not meet the mandatory criteria.

Further information is available for landlords and tenants on the following websites:

Source Services:

HMO's on The Landsite

Fusion Student Living

HMO Services London