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 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.

The attraction to HMO’s is largely due to their high cash flow capabilities. HMO’s are let by the room, rather than as a property as a whole and therefore tend to offer significantly higher yields to an Investor. That being said, it is important that the property is managed properly to ensure that is it is consistently tenanted, hence achieving its full potential.
Gross income can be defined as the overall income produced by the property without deducting expenses such as gas, electricity, taxes, etc.
The gross yield can be defined as the overall percentage return on investment of a property without deducting expenses such as gas, electricity, taxes, etc.
The net income can be defined as the income produced by the property after deducting expenses such as gas, electricity, taxes, etc.
The net yield can be defined as the overall percentage return on investment of a property after deducting expenses such as gas, electricity, taxes, etc.

Net yield is calculated as:
(Gross Income – Expenses Per Annum) ÷ Property Purchase Price x 100


For example:

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%

HMO’s are valued very differently to ‘residential family homes’ in most cases. We take in consideration the income, the ‘business’, the value in the AST’s and conversion and factors such as Article 4, planning, licensing and the tenant demand. The condition of the property plays a key part too. Usually, these variables produce an attractive ‘gross yield’ for Investors which is calculated by dividing the full annual income by the purchase price. This is a very generic overview, but it may be worth checking out our ‘Yield Map’ which gives an outline of yield expectations in areas across the UK.
As mentioned above, the majority of the properties we sell are being sold as investment opportunities or ‘income producing assets’; likely tenanted with AST’s in place, fully compliant and fully furnished. This means that they are likely listed for sale at an asking price that is higher than other residential ‘family homes’ in the same area. The reason for this is down to the properties cash flow capabilities which other residential properties on the street likely could not produce without further expenditure on those properties. You should consider this when seeking finance via a mortgage. For properties of 6 bedrooms or less, the Lender/Surveyor may not regard the additional ‘business’ value as it is not asset backed. In these instances, you may wish to ‘top up’ a mortgage valuation with your own cash in addition to your initial deposit. If this is not an option to you then please speak to one of our team and they can point you in the direction of alternative opportunities which may suit your investment requirements. These may include standard buy to let properties or blocks of flats for example.
‘Suis Generis’ is Latin and translates to ‘of its own kind’. It is a term used to categorise buildings that do not fall within any particular use class for the purposes of planning permission. An HMO of 7 beds or more would fall into this category and the development of an HMO of this nature would require planning permission. Properties with Suis Generis planning permission are often easier for Lenders to value as commercial assets rather than a brick and mortar valuation as they are no longer classed as residential family homes.
An Article 4 Direction is implemented by local planning authorities, withdrawing specific permitted development rights across an area. One of these rights is often the right to convert a residential family home into an HMO. It is not impossible to develop an HMO in an Article 4 area but it would require planning permission (which is not necessary in non-article 4 areas for an HMO up to 6 beds). It is widely believed to be tougher to have an HMO planning application approved in an Article 4 area. If a property was operating as an HMO in an Article 4 area before the Article 4 Direction was in place then this property will benefit from ‘Grandfather Rights’, meaning that it has the allowance to continue to operate as an HMO moving forward.

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.

An HMO License is specific to the Owner and is therefore not transferable when a property is being sold. When purchasing an existing HMO you would need to apply for a new license once you take ownership of the property. The Property Advantage have never sold an HMO in which a license has not been granted to a new owner, however we always recommend for an Investor to contact the relevant HMO officer in the area they are wishing to purchase in order to carry out full due diligence.
Unfortunately, this is not a question that we can answer as it is very specific to your individual circumstance. You should speak to your accountant in order to ensure you are purchasing via the most efficient means possible.
According to you must pay SDLT when purchasing a property over a certain price (£125,000 for residential property) in England and Northern Ireland. There is a separate Land & Building Transaction Tax when purchasing in Wales or Scotland. You must send an SDLT return to HMRC and pay the tax within 14 days of completion of the property. Your solicitor will usually file your return and pay the tax on your behalf on the day of completion and add the amount to their fees. They’ll also claim any relief you’re eligible for, such as if you’re a first-time buyer.
The Property Advantage charge a reservation fee to protect both Buyer & Vendor. As soon as that reservation fee is placed we will remove the property from the market and we operate a no ‘gazumping policy’. You should not pay the reservation fee until you are fully committed, have carried out full due diligence on the property and have your funding in principle in place (if necessary). The reservation fee will be refunded if a property is down valued or a significant defect in which cannot be resolved is found during the surveying or conveyancing process. The reservation fee will not be refunded should you change your mind in regard to the purchase. When you are ready to progress with a property we will send you a contract to sign so you will fully understand your rights prior to committing. If you would like to see this contract in advance then please speak to one of our Brokers.
We sell a variety of investment opportunities, the majority of them being tenanted residential investment properties in the form of HMO’s, blocks of flats or buy to let portfolios. When valuing or selling a property the ideal would be for the property, block or portfolio to be fully tenanted and this is what we advise our Vendors to aim for. Of course, this is not always the case as there are occasions when a property or rooms/units within a property are vacant or transitioning between one tenant and the next. We will provide all Investors with a full rental schedule and this will include current and historic occupancy as well as historic income so you can be satisfied that you are purchasing a performing investment asset.
Unfortunately not, however if you ask the advice of our Brokers we may be able to make recommendations in certain areas. Full due diligence should be carried out on all recommendations made as these companies are unrelated to The Property Advantage.
Yes. We are a fully compliant company, regulated by the Property Ombudsman. This means we have a requirement to check the source and availability of funds. If you are using a mortgage then POF can consist of a Mortgage Agreement in Principle (which can be provided by the Lender or Mortgage Broker) plus a bank statement showing proof of deposit. Cash Buyers will be required to provide a bank statement showing the full cash funds are available.
This depends on a number of factors including the financing structure of a deal (cash, mortgage or other lending option), surveys, local authority performance in providing relevant searches, the speed in which your Solicitor can act, and more. As a general rule of thumb, we would expect a cash purchase to complete in around 8-10 weeks and a mortgage purchase to take around 12 weeks.
This is your own personal decision and depends on many variables. If you are purchasing with a mortgage then your lender will require (as a minimum) a mortgage valuation survey.

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.

If you are purchasing with a mortgage then yes this is a requirement. If you are purchasing with your own cash funds then this is your decision. Your Solicitor can advise and make recommendations for the best course of action.