Introduction

How do you convert your property into HMO? If you are a landlord/lady then you could potentially make 30 – 40 % more return on your investment in a shorter time frame by converting your property into a HMO. Sounds interesting right! But how is it done? Can you do it?

If you are considering converting your property into a HMO then this article is for you. It will reveal all of the major property secrets you need to know. There are several factors that are going to dictate whether you will be able to convert your property into a HMO.

Lets start from the vary basics and break it down into easy step by step chunks so by the end of you reading this article you will have a much better understanding of what you can achieve with your current property and what is the best way to get there!

What is a HMO?

Most of you reading this will likely know what a HMO is, but its good to go back to basics and build on from there. Feel free to skip to the new chapter if you like, but for those of you who don’t know what HMO stands for it is an abbreviation of House in Multiple Occupation. This is exactly what is says on the tin.

Typically, properties are occupied by one family and they only pay one form of rent to the landlord/lady or pay a set amount from an ISA or mortgage.

A HMO (House in Multiple Occupation) will instead charge rent per bedroom, therefore residents will be assigned to that particular bedroom. For example, if you have 4 bedrooms in your current property then instead of charging rent for the whole house you would charge rent for each room.

The government describes a HMO as “a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’ “.

HMO investment : How HMOs can make you rich.

Some simple cost examples can illustrate why HMOs can be so appealing to home owners and landlords and ladies.

Lets say you put a typical 10% deposit down on a standard 3 bedroom home priced at £150,000.

Standard on the market 3 bedroom home (without extending) keeping things simple at £500 a month rent for tenants or mortgage payment comes out at £7,000 annually and £70,000 after 10 years. Depending on the mortgage ISA rate its likely it will take 15-20 years to pay off your mortgage. A long time to have the burden of mortgage payments! Who wants to pay that off for such a long time? No one. So what can be done about this?

If you convert the same 3 bedroom property into a HMO (without extending) and charge say £400 per room each month, your monthly income will be £1200! A huge difference!

Using this as a rough estimate for HMO rent, the same 3 bedroom will bring in £14,400 in rent for the year. Over ten years this works out at £144, 000. This means you are going to be saving 5-10 years of payments!

This almost sounds too good to be true. But this is a proven way to make the most out of your property and get your money back much faster than standard mortgage payments or the traditional way of renting. But it gets better, if you are willing to pay a little extra to extend your property you can make a even greater return on your investment!

Keeping the same £150,000 3 bedroom example we have just used, lets say we added a £10,000 dormer and a £20,000 rear extension to the property. Meaning your total upfront cost with 10% down is £45,000.

This time you have allowed for 2 extra bedrooms within the additional internal space and improved the internal layouts! You now charge £450 per bedroom and you have 5 bedrooms of income each month. This gives a monthly income of £2,250 and an annual income of £27,000. Within 2 years you have paid off

the extensions to your property and regained the 10% you have put down. Over 10 years you will earn £270,000. You have now seen all of your money returned to you and with a profit of £90,000. The mortgage will be paid off in full and you will be sat on a steady investment bringing in money. The best part is there is not limit! Once you have got one HMO, you can do more!

You must be thinking, but does this apply to me? Can I convert into a HMO and what do I need to do that? The short answer is yes but you will first need to comply with a few things.

Is your property big enough? What is the both the min and max limit for HMO property conversion?

When it comes to HMO conversions, properties that make the most money are properties that offer the best internal spaces. Usually for most local councils, there is a standard HMO guidance for property conversions. This means that there are certain space standards you will need to comply with for your property to be converted.

It is likely that if you have a small terrace property, then the odds are without extending it, you likely won’t be able to meet the minimum HMO space requirements set by your council. Generally a good rule of thumb for HMO conversions is a total internal square meter space of 80-90sqm. This will allow for Kitchen, Living, Dining, Bathroom and bedrooms at a good size for future residents.

It is important that you check your councils requirements before you go ahead as it will have a huge impact on what you can achieve! To find your local council click here and put in your postcode it will send you directly to there website. From there, go to planning policies or search for the space requirements. Sometimes these can be quite a task to find and hidden within some design guide document.

For a full breakdown of your potential development into a HMO, the best practice is to contact an experienced architect/developer who will be able to give a feasibility study on your property which will give you a full breakdown of the potential to come from it.

A popular question asked by developers and landlords is: is there a limit to the number of people that can live in a HMO? The short answer, no. The amount of people is dictated by the special requirements set by the council and the space you have available at your particular property. As long as your property is big enough and you want 10 people, then you can have 10 individual residents. This is common among HMO conversions for student residents.

What do you need to become HMO Licensed?

Generally, if you are interested in converting your property into a HMO then you will need to apply for a HMO License. (contact your local council to find out if you require one – but it is standard practice that you do). A HMO License will assess you as a Landlord/lady and make sure you are fit to manage the property. Generally looking if you have a criminal record and anything that will make you unfit to manage a property. In most cases, you should be fine.

The government specifies this as follows;

You must make sure:

o the house is suitable for the number of occupants (this depends on its size and facilities)

o the manager of the house – you or an agent – is considered to be ‘fit and proper’, for example they have no criminal record or breach of landlord laws or code of practice

You must also:

o send the council an updated gas safety certificate every year

o install and maintain smoke alarms

o provide safety certificates for all electrical appliances when requested

The council may add other conditions to your license, for example improving the standard of your facilities. They will let you know when you apply.

Is it just the licensing you will need to begin renting your HMO? Technically no. You will still require a certificate of lawfulness or full planning permission.

How to get planning permission & finding an architect

 

So, you have the right property, and you have applied or already have a HMO License. You will need either planning permission or a certificate of lawful development at this point.

The two differ dependant on the location of your property. In some places within a borough or town, there already might be a high concentration of HMOs and the council will require more family dwelling units.

When defined as use classes; family dwelling units (homes) are use class C3 and HMOs (Houses in Multiple Occupation) are use class C4.

If there is a high concentration of HMOs councils tend to invoke an article 4 direction, which are common in conservation areas (check if your property is in a conservation area here) Article 4 directions restrict permitted development rights on properties which can allow a conversion or extension without full planning permission and give you a certificate of lawful development.

The things you will need to obtain planning permission or a certificate of lawful development is drawings and information required to submit an application to your local council. You will require an architect who can produce the following list;

– A full measured site survey

– Existing sections

– Existing elevations

– Existing floor plans

– Proposed sections

– Proposed elevations

– Proposed floor plans

– Design and Access Statement

– Building regulation drawings

This checklist will be everything you need from your architect to ensure that you can successfully complete your conversion into a HMO.

Maintaining standards for your residents

Congrats! You now know the secrets to getting rich through your HMO! What now? You have your planning permission or certificate, you have your HMO license and you have tenants in the property paying a steady monthly income. You will need to ensure you are maintaining the property and keeping it to a high standard.

As always with property, something is bound to happen at some point whether thats a boiler breakdown, leaking pipe, radiator not working and so on. It will be your duty as a Landlord/lady to manage and fix any problems your residents have.

There are a few options here. You can take this responsibility on yourself and hire your own handymen or alternatively you can put a lettings company in charge who will deal with this sort of thing without any hassle to you. They will charge a fee of course. So its up to you whether you want to pay this fee or manage the property by your own means.

The recommended option is to allow for a letting agency to deal with these types of issues as it they will be dealt with at minimum time and effort to you. You will be able to maintain standards as required by these agencies and spend your time elsewhere.

Conclusion

You should now have a thorough understanding of what a HMO is, how they work, what there advantages are, how they will make you much more money than a standard family dwelling house, if your property can be converted, what you will need to do to satisfy planning permission and what is the best way to maintain and manage the property when you have successfully converted into a HMO.

If you are a landlord/lady or an investor looking to make a high return on investment and the most from your property then act now! Contact an architect to produce a full set of planning drawings and graphics.