Published: 11/08/2023 By Musgrove & Co
Amidst the ongoing cost of living crisis , landlords are facing challenges to maximise their revenue. One solution might be to convert single-let properties into HMOs (House in Multiple Occupation).HMOs require more effort from landlords, but they offer the potential for significantly higher yields. While a single let might yield between 5% and 7% return on investment, an HMO could offer an impressive ROI of 15% to 20%, or even more.
So, what exactly is an HMO? It's a large house where three or more individuals reside in separate bedrooms but share common amenities like the kitchen and laundry—a form of "house share."
Keep in mind that all large HMOs (which means properties rented to five or more people from more than one household) require a license. In certain areas, even HMOs with just three tenants need a license, valid for up to five years. Landlords should check with local councils to determine if their property falls under licensing requirements.
To be eligible for the HMO license, landlords must ensure the property meets certain criteria:
1. Suitable accommodation for the number of occupants.
2. The house manager (landlord or agent) must be a 'fit and proper person.'
3. Annual gas safety checks with certificates sent to the local authority.
4. Installation and maintenance of smoke and carbon monoxide alarms.
5. Electrical safety certification for all appliances with documentation provided to the local authority on request.
Moreover, specific regulations govern the living space for tenants, such as minimum room sizes based on the age and number of occupants.
Renting out an unlicensed HMO in an area where it's compulsory can result in an unlimited fine, so compliance is crucial.
To convert a property into an HMO, landlords must ensure sufficient living space, prioritize fire safety, and guarantee reliable and tested appliances. Several options for creating more space include rear extensions, en-suite or galley kitchens in bedrooms, loft conversions, communal dining areas, and utilizing garages for additional living space. Landlords should seek professional advice from HMO agents or specialists to ensure the conversion is suitable.
Additional safety measures include fire resistance labeling for furniture and furnishings, installation of fire doors, unobstructed fire exits, and knowledge of fire procedures. Emergency lighting may also be worth considering.
While HMOs offer excellent investment opportunities, landlords must bear in mind the increased regulations and potential risks associated with finding suitable tenants. Insurance premiums for HMOs may also be higher.
Some experts believe that HMOs are more resilient to economic fluctuations, as there is a consistent demand for this type of accommodation even during a recession. In case one tenant leaves, the impact on revenue is relatively minor.
If you're considering HMO conversions or require expert advice on the property market in Norfolk, get in touch with Musgrove & Co—an independent estate agent with local market expertise. We aim to provide a seamless selling journey and add value whenever possible. Contact us today at our Norwich or North Walsham office or use our instant valuation tool to estimate your home's current market value.