HMO Tips for property investors

Transcription of the video below:

I wanted to tackle this subject because I think there are changes happening in the market at the moment. 

If you’re looking at houses of multiple occupation, great strategies by the way as they may produce, 200, 300 a month and suddenly it becomes, £900,000 a month net in. So when I’m talking to people they come along and they’ve got a hammer and looking to put a nail they want an income with a buy to let. 

Whereas houses of multiple occupation it’s a strategy I got into about three years after we got into property in 2001 and I wasn’t really aware of it and I didn’t understand it and it wasn’t prevalent.

Whereas now market conditions have changed divorce rates have gone up a lot, a lot more people are staying single for longer and not necessarily wanting to buy and own a house, so they’re renting rooms. Not buying apartments but renting rooms, so huge opportunity. 

Let alone the government housing opportunities as well with regards to social housing i.e. HMO social housing, HMO charities, asylum seekers, et cetera. That said people are doing it seriously the wrong way. There are three numbers you need to be aware of. These are minimum square metres for the rooms you’re letting out. 

A single room for anybody under 10 years of age a room which you have HMO licence on then the square metre is 4.64, two decimal places. Mark my words, if you don’t get this right two ways it will hit you. One is the valuation, and one is the licence. If you’re renting out a property and you happen to have a 10-year-old in the property under contract it could be a family there for example, that’s 4.64 m². 

Anyone over 10 years of age it’s 6.51 m² for a single room. If you said to me, I got one here for 6.45 and measured to be that it will not pass. I know this because an error was made by a valuer on one of my properties and it involved a bit of a wrestling match. It’s frustrating for us as property investors the minimum size you’ve got to remember. I’m always wary about getting down to the bare minimum because it does feel like the room is small and you want to provide a great home for people. 

The third one is two people in a room over 10 years of age, 10.22 square metre. So again, I know landlords, amateurs that have tried to get a double room rented out but the double room isn’t 10.22 m². They stuck a double bed in there and tried to let it out and you’ll get into trouble. You may say, the properties are going to be a single bedroom and then you decide to double let it out this is where you have to be careful as these days people have started reported property investors or landlords that are operating illegally and are an unlicensed, or article four areas where people are making the biggest mistakes. When you’re looking to do a HMO conversion this is why I courage it’s good to learn and educate yourself. 

The last point is what’s the impact? 

Number one if you get a property with five bedrooms as HMO one is standing less than 4.65 square metre and the valuer goes out sees the property and they identify that, they report that back to the lender. The lender will then downgrade the property; it will be classified as four bed instead of the five bedrooms. 

Why does that affect you? 

Because the income may be part of the way they value the property. You might lose five, six, seven, eight, nine, 10 grand valuation on the property as it’s lost that revenue.

Secondly, the license, if you’ve got a property that’s substandard, the inspector comes out and says this is below unless you knock the chimney stack out they’ll say you can’t let this room out. They are more about safety and about decent living standards for people, or on occasions they may even say they want the room locked off and actually bolted and the key is removed. 

Four important things, three important numbers, hopefully this was useful.

Disclaimer: This video or written publication does not offer investment or financial advice and nothing in them should be construed as investment or financial advice. Our publications provide information and education only. The information contained in our publications is not, and should not be seen as a recommendation to use any particular investment strategy. Always seek financial advice from an independent financial adviser around your own personal financial situation.

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