Here in Leeds we have a high concentration of HMO properties. Many people believe HMOs are the domain of students only. On the contrary, HMOs are becoming more and more popular with young working people due to the lower cost of accommodation, as well as having the appeal of a bills inclusive rent. They are also a fantastic way of meeting new people too. Being offered furnished and bills inclusive, HMOs make for hassle-free and mobile living for young tenants. We often find HMOs are a perfect choice for young people starting out in their career, especially if they are moving to Leeds and don’t already know many people in the area. Many of our tenants make good long-term friends in their shared homes.
HMOs are attractive to investors too due to the fact they can offer much higher yields than single let properties. Rooms are often let to individuals rather than the whole property being let as one unit, in order to maximise yields.
That said, management is more intensive, running costs are higher, and there are many complex regulations that apply to HMOs that do not apply to single let properties. There is also a higher turnover of tenants, and there can be more wear and tear on the property. It is for these reasons that many Landlords, and indeed many Letting Agents, stay away from HMOs.
Investors who target HMOs generally don’t attempt to manage their own properties due to the time required and the complexity of the process. They realise their time is better spent on more important things and usually outsource management to an agent that has the systems, team, expertise and knowledge in this area.
Mortgage Lenders are often more cautious when it comes to offering finance for HMO mortgages. Landlords/Investors usually need experience of owning a HMO in order to pass the lender’s criteria, and rates are often higher than standard Buy To Let mortgages.
Landlords looking to buy or rent out their properties as HMOs need to be mindful of the Article 4 Direction in Leeds. Article 4 has been implemented here as it has in many other cities around the UK, in order to restrict the number of HMOs in certain areas. This is for many reasons including controlling the volume of occupants in an area, noise, parking, refuse, potential of anti-social behaviour, and so on. Most of inner Leeds falls within the Article 4 area, the map of which is available on Leeds City Council’s website.
Landlords looking to let their properties as a HMO will need to apply for change of use, unless there is already constant historic evidence that the property has been let as an HMO since the restrictions were brought in. The usual planning class for residential homes is a ‘dwelling house’ C3, whereas HMO falls under the C4 category.
Some HMOs also require a licence. The circumstances of which properties will require a licence are complex, however as a general rule if the property is to be let to 5 unrelated sharers or more and the property has 3 storeys or more, then it would generally need an HMO licence.
In order to obtain a licence, the property would need to ensure it has the correct features which often include a hard-wired fire detection system, fire doors, and interlinked smoke detectors with battery back-ups. Minimum rooms sizes may also apply, as do the amount of storage, cooking, and washing facilities that must be made available. HMO licences also fall into different categories. In general terms, the larger the property, the more restrictive the terms of the licence will be. HMOs must have Electrical Periodic tests carried out routinely as well as routine testing of fire safety equipment.
Every property is different, therefore to establish exactly what upgrades you would need to comply with licensing, you would need to take advice from the HMO team at Leeds City Council.
Smaller HMOs usually do not need a licence, but are still subject to planning approval for change of use to C4. A property is classed as an HMO in planning terms if it is let to 3 or more unrelated sharers. This would be defined as an HMO in the council’s eyes for planning, whether the 3 or more unrelated tenants were on one tenancy agreement (with joint and several liability) or if they are renting a room each on individual tenancy agreements.
Clearly this is a more technical area than buy-to-let, however understanding it can be lucrative for investors. A word of caution however – the HMO market has become extremely competitive in Leeds in recent years. Location, the quality of refurb/finish, the addition of en suite bathrooms, and room sizes have become increasingly important as a result. Voids are becoming increasingly problematic for some Landlords whose properties aren’t competing in these areas.
We don’t advise investors to go straight into HMO investment without prior experience as a Landlord.
Do you want to know more? We have written a number of helpful articles, which are published on our website, which cover some of the common questions we receive from investors.
We have a number of years experience managing HMOs and we are placed perfectly to guide you further.
Do you want to know more? We have written a number of helpful articles, which are published on our blog page, which cover some of the common questions we receive from investors. You can read them by following these links:
- 'Understanding How To Invest In HMO's'
- 'How To Get Planning Permission (in an Article 4 area)'
- 'Overcoming challenges to HMO investing - Regulation'
- 'How To Get A HMO License in Leeds'
- 'Government Extends Mandatory Licensing Of HMO's' (December 2016)
We have a number of years experience managing HMO’s and we are placed perfectly to guide you further.
For more information on this complex area, or if you are considering buying or letting a HMO, give us a call today so we can show you we can help you to get a fantastic return from your HMO.