A Guide to HMO Conversion in 2023

The rising popularity of serviced apartments attracts guests seeking hotel-like comforts while maintaining their privacy. To stand out among the competition and increase profitability, it’s crucial to enhance your marketing strategies for your multiple properties in town.

One popular strategy is converting rental properties into HMOs, which can lead to higher returns. In response to growing regulations and financial challenges, many landlords are looking for ways to enhance their property investments. If you’re contemplating this conversion, there are specific steps to follow, including ensuring compliance with legal requirements and preparing the property to accommodate multiple occupants.

To begin this journey, it’s essential to understand the legal aspects and the necessary modifications for your property. Making informed decisions at the outset is crucial for a successful transition from a standard rental property to a profitable HMO.

What is the meaning of HMO?

An HMO, or House in Multiple Occupation, refers to a property like a building, bedsit, hostel, or flat that’s rented out by multiple households. These households may include families or two or more tenants who share common amenities like a bathroom, toilet, or kitchen.

The key characteristics of HMO housing include the fact that it serves as the primary residence for its occupants, typically housing three or more tenants who aren’t considered a single household. Rent is paid by the tenants.

HMOs are more commonly found in specific property types and areas, such as bustling student districts with larger, adaptable properties that make them well-suited for this housing arrangement.

Why should you convert your rental into an HMO?

Landlords often turn to HMOs as an efficient means to manage their rental properties and boost their income. The appeal lies in collecting rent from multiple tenants, which can potentially result in a higher rental yield.

One significant advantage of HMOs for landlords is increased financial security. Unlike single households, landlords are not dependent on a single tenant’s income. If one tenant decides to leave or encounters payment issues, rent from other tenants remains a steady source of income.

HMOs can be a mutually beneficial arrangement for both tenants and landlords. Tenants may find the prospect of lower rent costs and the opportunity to live with more people appealing.

Does your property need to be converted to an HMO?

Preparing your property for HMO rental involves several considerations and potential adjustments. In addition to meeting compliance requirements, factors such as space, layout, facilities, furniture, and appliances must be taken into account.

Once your property has been converted into an HMO, your local authority will conduct an inspection within five years. This inspection will involve a Housing Health and Safety Rating System (HHSRS) risk assessment. It’s worth noting that the HHSRS guidelines have been updated since 2019.

If the assessment identifies any unacceptable risks, such as asbestos or radiation, it is crucial to take swift action to rectify these issues.

Deciding To Convert A Property

Converting a property into an HMO is a practical endeavor, whether you’re an existing property owner or in the market for a new investment. If you’re starting from scratch, your journey begins with searching for an HMO property for sale. Extensive research and leveraging industry connections can help you secure the best deals.

For those with existing properties, the process may prove intricate but ultimately rewarding. Begin by assessing whether your property requires an HMO license, a common requirement for homes accommodating five or more individuals from distinct households. Local authorities may have varying regulations, so it’s advisable to reach out to them for precise guidance.

Ensuring that your property aligns with HMO standards is paramount. This entails obtaining necessary documents such as gas safety certificates, installing smoke alarms, and implementing other safety features. Additionally, compliance with minimum room sizes and other guidelines is essential. If your property falls short, be prepared to make the requisite adjustments, which may involve obtaining planning permission.

Consider the target tenant profile for your HMO. These properties cater to a diverse range of individuals, including students, young professionals, and working individuals. Customize your property to align with their preferences, whether that involves furnishing the space or offering additional amenities like broadband connectivity and workout facilities.

Securing financing for HMO conversions can be a challenging endeavor. Collaboration with a lender experienced in HMO financing is advised. Additionally, check with your property’s existing lender to determine if they permit conversion. Typically, HMO mortgages necessitate a minimum deposit of 25% and rental income that covers at least 125% of interest payments.

Do not overlook the importance of HMO insurance, which should be tailored to your specific needs. Consider various policy types, including coverage for building and contents, legal expenses, and accidental damage. Engaging in a discussion with an insurance agent can help you make a well-informed choice based on your unique situation.

HMO renovation tips

Make the most of outdoor spaces. Outdoor areas are crucial for attracting long-term tenants looking for a comfortable home. Consider adding seating and BBQ facilities to cater to the preferences of modern renters.
Prioritize kitchens and bathrooms. The condition of these rooms can significantly influence a tenant’s decision. Furnish them to high standards and pay attention to the finer details to meet the discerning expectations of renters.
Invest in essential appliances. While managing expenses is important, certain features like refrigerators, sofas, and beds should not be compromised. Cutting corners on these items may result in higher costs in the long term.
Ensure move-in readiness: tenants prefer a property that’s ready for occupancy, not one that feels like a construction site. Have everything prepared before their arrival to minimize the risk of damage or early tenancy issues.

Types of properties to convert into HMO

When considering HMO conversions, property selection is crucial. Converting an old countryside farmhouse may not be practical unless your target tenants are affluent and looking for a fully-furnished residence, which goes against the HMO’s purpose.

Properties with characteristics like former police stations, fire stations, guest houses, shops, churches, factories, theaters, GP surgeries, or even former prisons often find a new lease on life as HMOs due to their abundance of rooms and communal areas. Converting such properties typically entails fewer complications with local authorities and reduces the potential impact on the surrounding neighborhood.

Furthermore, larger Buy To Lets (BTL) with three or more bedrooms and at least one living room make excellent candidates for HMO conversions. This move can significantly enhance your monthly income.