HMO Buyer's FAQs
An HMO is a House of Multiple Occupancy; a house rented out by at least 3 people who are not from one ‘household’ (for example a family), but they share facilities like bathrooms or kitchen.
According to gov.uk a Landlord must license their ‘large HMO’. A property is classed as a large HMO if all of the following apply: –
- it is rented out to 5 or more people who form more than one household
- some or all tenants share toilet, bathroom or kitchen facilities
- at least one tenant pays rent (or their employer pays it for them)
(It is important to note that there are areas where a HMO license is necessary even if your property is smaller and rented to fewer people. You should always check with the relevant council when looking to invest in an unlicensed HMO of 4 beds or less). In order for an HMO to be issued with a license it will need to be rendered compliant by the local HMO officer. This will involve it passing a number of safety and space requirements.
Net yield is calculated as:
(Gross Income – Expenses Per Annum) ÷ Property Purchase Price x 100
Property Purchase Price = £150,000
Gross Income = £18,000
Expenses Per Annum = £3,000
Net Income = £15,000
Net Yield = (£15,000 ÷ £150,000) x 100
Net Yield = 10%
This depends on a number of factors including your yield expectations, capital appreciation expectations, management plan, budget, how hands on you wish to be, and more! Our ‘Yield Map’ provides a general idea of yield expectations in a number of popular HMO areas across the UK, which may hint at an appropriate area for you based on yield. Remember to consider that as a general rule of thumb, lower yielding returns, although they may provide less immediate cash flow, often benefit from higher capital appreciation over the years. It is important that you weigh up cash-flow returns V capital appreciation potential and considers what is most important for your investment requirements.
Management is another consideration for you when choosing your investment area. If you have an investment plan to manage the property yourself then the closer to your home-town, the better! If, however, you would prefer a more ‘hands-off’ approach then purchasing a property with a management company in place may widen your opportunities in regards to location.
There are a number of surveys that can be considered when purchasing any property (investment or otherwise):
Valuation Survey – This determines the value of the property. This is generally for the purpose of the mortgage lender and for HMO’s of 6 bed or less it will usually only take into account the brick and mortar value of a property.
Condition Report – As the name indicates, this is a report which outlines the condition of the property.
Homebuyer Report – This will include a market valuation, advice on defects and recommended repairs and also suggestions of any likely ongoing maintenance requirements.
Building or Structural Survey – This survey is not dis-similar to the Homebuyer Report however this one will look into areas which are more difficult to reach. This survey type is the most comprehensive survey and is generally used for older or unusually constructed properties.