What to look for in an HMO investment property

HMOs are a profitable business model for professional landlords, but they require careful management. If you are thinking of investing in an HMO, read on for some tips and advice.

What is an HMO?

An HMO is a house of multiple occupation, where tenants rent rooms and share communal areas, such as kitchens and bathrooms, unlike a large property converted into bedsits where each unit is self-contained. If three or more unrelated people share a rental property, it is classed as an HMO.

HMOs are popular with low-income tenants on benefits, foreign workers in seasonal work, and anyone looking for temporary housing. Rental yields are usually higher from an HMO, but most HMOs are subject to landlord licencing and additional red-tape, which increases the cost.

Identify the Right Location

Birds of a feather flock together, and it’s no different with HMOs. Shared houses are typically clustered in the same areas. Since older Victorian and Edwardian properties are most suited to HMOs, it is common to see many old houses on the same street all converted into HMOs.

Before you start looking for a property, research the local area to check prices and see where most of the current vacancies are. It’s pointless converting a nice four-bed family home on a smart estate if your rents will be too high to appeal to the majority of tenants. In addition, the neighbours won’t thank you.

Finding a Suitable Property

Any larger property can be converted into an HMO, but inexperienced landlords may find it easier to invest in a property that is already being used as an HMO. This eliminates the need for expensive renovations, and if there are tenants already in place, you can pick up the reins of the business with very little interruption.

However, before you invest in an existing HMO, have it thoroughly checked out to ensure it meets all current health and safety requirements. There should be fire escapes, fire doors, firefighting equipment such as smoke alarms, fire extinguishers, and fire blankets.

In addition, it is wise to have the wiring checked, especially if the property is more than 25 years old. You can get in touch with a service such as Trade Facilities Services who carry out electrical testing in the London and Essex area. They can provide an electrical safety certificate and EICR, ensuring you remain compliant with landlord legislation. They can also do fire alarm testing.

Work with an Experienced Estate Agent

If you want to buy an existing HMO, speak to local estate agents to find out what they have on their books. Many estate agents also work as letting agents. They’ll know if there are any landlords looking to sell up, which could give you an opportunity to strike a good deal before other buyers are alerted.

Converting a Residential Property into an HMO

Identify the right property and you could make a good profit. Look for a property with large rooms and more than one reception room. Bear in mind that the more work a property needs, the more the conversion will cost. This option is best if you can do most of the work yourself.

Always take professional advice before buying an HMO as an investment. That way, you won’t end up losing a lot of money.