There is an option for landlords which allows them to let their property to more than one household. This is called a House in Multiple Occupation (HMO).
A household is either an individual or members of the same family. The UK government classify a family as people who are:
- Married
- Partners and living together
- Relatives or half-relatives
- Step-parents and step-children
A small HMO is a property let to at least three tenants forming more than one household, while a large HMO is a property let to at least five tenants forming more than one household.
Bedrooms are let out to households while bathrooms, the kitchen and other communal spaces and amenities are shared.
HMOs have different legal requirements than traditional Buy to Let properties. Read our guide if you would like more information about HMO licences.
There has been increased demand for rental properties in recent years, yet the number of HMOs on the market has steadily decreased. This makes now an opportune time to invest in an HMO.
What are the main appeals for landlords to let their property as a HMO?
Increased demand in cities
A HMO provides tenants the option of renting out a bedroom as opposed to an entire property.
For students and young professionals who are moving to urban areas but are not looking for a long-term commitment, a HMO is a good option for them.
HMOs have become increasingly attractive to students due to the ongoing shortage of student accommodation in many university cities.
HMOs mean individuals can find accommodation without the stress of finding roommates themselves, which is a particular issue for those moving to a new area alone.
Higher yield
HMOs can provide landlords with a better rental yield than if they were to let the property as a single unit.
This is because you can charge more per bedroom. For example, a four bedroom property let at £1,600 per month to one household could instead be let to four different households at £450 per month, giving you a total of £1,800 per month.
Where appropriate, you could also charge more for certain bedrooms. The master bedroom with an en suite could be priced higher than the smallest bedroom in the property.
Avoid significant void periods
Void periods, periods when your property is empty, can make a dent in your rental income. If you need rental payments to cover your mortgage, having an empty rental property is cause for concern.
With a traditional buy to let property, you are letting to just one household. Therefore, if the tenancy agreement reaches its end your property will generate no rental income until new tenants are secured.
As a HMO is let to more than one household, it is less likely that your property will be entirely empty at any given time.
So even if a household were to move out of your rental property, you'll still have a portion of rent coming in each month.
Turning your rental into a HMO
To let your property as a HMO you will need to prepare it first. HMOs have requirements such as minimum room sizes and the need for fire doors.
A large HMO will require a HMO licence.
In some areas local councils require landlords to get a HMO licence for smaller HMOs too. For clarification on the local requirements, contact your council.
What are the drawbacks to HMOs?
The main drawback to letting a HMO is an increased management workload.
Local authorities have regulations in place to prevent people from taking advantage of letting properties as a HMO rather than as an entire property.
As your property is let to multiple households, there will be multiple tenancy agreements to manage, of which could be different lengths with varying start and end dates.
This is why we offer a fully managed service for landlords. You can save time and effort by letting us take care of your investment for you.
Is your rental property making the most yield it could be? To find out, book a free lettings consultation today.
Reeds Rains E-marketing Executive
