If you’re considering becoming an HMO landlord, there is a lot to consider. Below, we look into the pros and cons to help you make a more informed decision.
Firstly, what is an HMO?
The HMO meaning according to GOV.UK, is a property where at least three unrelated tenants reside, forming more than one household. They must share facilities, like a bathroom and kitchen.
9 Advantages and disadvantages of HMO
Financial gain
When it comes to property investment, HMOs can be very lucrative. In comparison to a single lease, HMOs can return three times as much in rent.
Streamline your profile
With HMOs, you don’t need to have a large portfolio that is time-consuming and tedious to manage. By including just a few HMOs in your property portfolio, you don’t have to manage a number of lower, less financially worthy properties.
Tax deductions
Revenue costs are tax-deductible and these can include any structural work you have had to do to your property or properties to make them more habitable.
You’re in demand
The demand for flexible accommodation is on the rise in the UK. HMOs stand at the forefront of accommodation options for a wide number of people who are looking for a temporary home until they can join the property ladder themselves.
Legal obligations
As a landlord, it is your responsibility to ensure that the property is safe and well maintained. This includes updating gas safety certificates annually and electrical appliance safety certificates when/if requested. In addition to this, you must also ensure the property is structurally safe and fire prevention, such as the installation and maintenance of smoke detectors, is up-to-date.
Higher tenant turnover
It can be draining on time, money, and resources to have a higher turnover of tenants, but this is the usual occurrence for HMO landlords. Properties can be seen as a temporary stop-gap for people, not as their forever home and so they don’t tend to stay for very long.
Tenant damages
With a higher tenant turnover comes a higher risk of damages within the property, although they can be rectified usually through insurance they take time – and in this game, time is money.
Responsibilities
You would have a duty to carry out repairs to communal areas within the property, including:
- Electric wiring
- Water and gas pipes
- Bathroom fittings
- The exterior of the building
- Windows and gutters
- Fixed heaters and water heaters
Consequences
If you are found to have breached your license terms and do not have a reasonable excuse, this could be considered a criminal offense and leave you liable to a fine of up to £5,000 and the possibility of your license being revoked.
Conclusion
The significant advantage of converting a property into an HMO is that the rental yields are much higher than with single-occupancy properties. If the property is well maintained, there is the option to charge a premium rent for services such as gardening, cleaning, internet, or satellite TV. But there are some drawbacks too. Tenant turnover is much higher in HMOs, which can be time-consuming to manage. You also need to know exactly what your legal obligations are, including licenses, insurance, and bookkeeping.
If you decide that the cons are worth the financial gains, then you should consider speaking to a professional advisor about what steps you need to take to begin your new venture!
