Given the current economic climate and the housing market, many people are looking to share a property – not just students. Because of this, and many other contributing factors, HMOs are usually considered more profitable than standard rental property.
What is an HMO? (define large HMO)
HMO stands for a house of multiple occupancy but is sometimes referred to as a multi-let. The property is tenanted by three or more people (who are not a family) where there are shared facilities. HMOs are seen as more affordable for both individuals and households. For landlords, rental yields are generally seen as more profitable in HMOs than standard buy-to-let properties.
Returns and rates
HMOs are currently delivering returns of 7.7% as opposed to single tenancy property is now averaging 5.6%. With more tenants means a greater overall rental income from the property. Also, HMOs guarantee much less rental void periods because if one tenant moves out, you still have other rooms tenanted.
However, you will find the rates are slightly on the higher side for a HMO than standard buy-to-let properties and it is more competitive for borrowers with larger deposits. Saying that, there are certain tax benefits by investing in HMOs as more of your costs can be tax-deductible as you have the potential of claiming qualifying items within the communal areas of the property as an expense of the rental business.
Potential landlords looking to invest in an HMO needs to heavily consider the obligations you need to adhere to. According to Gov.uk, an HMO landlord must make sure that the house is suitable for the number of occupants (this depends on its size and facilities). The manager of the house should be considered ‘fit and proper’, for example they have no criminal record or breach of landlord laws or code of practice.
You must also send the council an updated gas safety certificate every year, install and maintain smoke alarms and provide safety certificates for all electrical appliances when requested.
Also, since 1st October 2018, landlords will have to stop letting rooms that fall below the nationally prescribed standard. Meaning that is now illegal to let rooms to a single adult where the usable floor space is less than 6.51sqm or 10.22sqm for a room occupied by two adults and rooms under 4.64sqm cannot be used for sleeping.
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