Being a landlord can be stressful but managing a HMO (House in Multiple Occupation) can be an altogether different ball game. What is it about this type of buy-to-let business that can cause stress, and how can you manage your HMO stress free in 2019?
The key to running a successful and non-stressful HMO is to be in it for the right reasons. As a landlord, you have to know this option is better for you than letting out to a single tenant.
It’s easy to see the pound signs at times. After all, you could rent three rooms for £500 a month each instead of receiving £1,200 a month from letting the whole house to one family, but managing a HMO requires far more than just cashing in on the money.
Here’s how to run your HMO business stress free in 2019.
Understanding the Differences in Legislation
Running a single-let can be straightforward. You need to vet prospective tenants, sign a contract, complete an inventory, set up rent collection, and if not keep in touch with the tenant at least always be available for communication. In terms of your property, you just have to comply with the necessary legislation such as arranging annual gas safety checks and keeping the home in a habitable condition. You can set up a business or simply use self-assessment to track this extra income.
When it comes to an HMO, there are several additional rules to know about. The term “HMO” refers to properties that are let as a main or only home to three or more tenants. These people should be unrelated to each other and in the HMO, they form a single household, sharing basic facilities.
In some instances, you’ll need planning permission and a licence. The requirement depends on:
- The number of tenants
- The relationship between tenants
- The location of the property
In cases where the property is either a four or five bed HMO with more than four occupants, you need mandatory licensing. This is actually different to the previous rule, which had floor number requirements – so, if you are letting out make sure to check whether you need licencing this year!
It’s important to know and seek the right licensing because you might be fined if you don’t. Running a HMO without the necessary licence could cost you £20,000 plus legal fees. Suddenly the extra rental income doesn’t seem that lucrative after all!
If you are unsure about whether you need a license or you need to apply for one, contact your local council. A HMO license tends to run for five years – put the renewal date in your calendar!
Also, if you are thinking of getting into running an HMO, you always need to apply for the license yourself. Buying a property that is already rented out as a HMO with a license doesn’t mean the license is valid under your new ownership; you must apply for it personally.
Dealing with Unique Property Maintenance Requirements
With a HMO, you also have to look after certain property maintenance issues differently to a single-let. The big difference is fire safety. With more tenants, you’ll have a higher risk of problems.
This means a HMO needs to always showcase adequate means for escape in the event of a fire, multiple fire and smoke detectors, and you might need to provide a fire extinguisher and blankets depending on the size of the property. Councils and landlord associations are a good place to find out more about these issues.
As a landlord, you are in charge of keeping communal areas clean and in good condition. While many HMO landlords choose to allocate this responsibility to the tenants, it might be a good idea to hire a cleaner.
A cleaner can be a big stress reliever. Having these areas cleaned and checked up a couple of times a month by a professional not only improves the value of your property in the eyes of the tenant but also acts as your eyes and ears to some extent on the condition of the property and the behaviour of the tenants.
Drafting Proper Contracts with Tenants
One of the biggest stresses and hurdles of running a HMO involves the tenants. More is definitely not always merrier. When you are letting out a single-let property, you just have to pick a single tenant (or a couple or a family). While it can be tricky, it’s much easier to put your energy into finding a good tenant.
With a HMO, you have to find three or more separate good tenants. It’s not just about you getting along and finding a good tenant, you don’t want them to hate each other – even if you’re not a live-in landlord - as it might cause issues within the household.
The best way to manage the stress of managing HMO tenants is to focus on drafting proper contracts with them.
The first rule is to have a clear tenancy agreement. Always use a professional AST. This has to be drafted for each individual room and includes a proper inventory of that specific room the tenant is responsible for.
You also have to deal with the communal areas. Each individual contract must have an inventory of these areas, including furniture and fittings the tenants share.
What about the responsibility of these communal areas? Will you just end up in a situation where no one ‘snitches’ on the others so that everyone can avoid trouble?
You need to set up a clear system of joint responsibility. Tenants can enjoy communal areas together but they also share responsibility. If you make it clear that everyone will have an equal amount deducted from their individual deposits to fix damages and undertake repairs, you go a long way to avoiding tenant complacency.
Establishing Communication Channels from the Start
You should also look to establish open communication with your tenants and encourage them to communicate not only with you but also with each other. You could, for example, set up a WhatsApp group to ensure everyone is informed about any issues regarding the property. This is much easier for alerting them to gas safety visits, for instance, than having to individually talk to each tenant.
Just ensure you maintain proper boundaries. As a landlord, you don’t have to be friends, but stay friendly. Maintain professionalism of in any such group discussion.
You shouldn’t just trust tenant reporting either. It is crucial to conduct regular landlord check-ups on the property, just as you would with a “normal” let, so that you can deal with issues before they turn into big problems.
The key here is to be mindful of the tenant’s privacy. You never want to just show up. Instead, establish a quarterly visit. Always let the tenants know ahead of time and ask if it’s OK for you to come around. Don’t go if tenants have an issue; simply schedule another time.
Make sure you also maintain a position of landlord and not referee. It’s all too easy for tenants to have the occasional bust-up, but it’s not your job to take sides or solve their disputes – encourage them to talk rather than fight.
If someone is unhappy and really wants to leave, it might be better in the long-term to be flexible and arrange for this, even if the contract is still running. An unhappy tenant might cause more issues in the house in general and you’ll soon have everyone moving out!
Dealing with Void Periods
Another potential stress factor for managing a HMO is void periods. Void periods are never good but they could be difficult in HMO’s, which are often student accommodations. With students, you often have the risk of everyone moving out in the summer to go back home.
There are different ways of handling this kind of void period. You can consider allowing the tenants to keep letting during the summer months for a lower rent, even just to keep their stuff there. If your rental yield can bear this, it might be a worthwhile choice and prevents you from having to look for another tenant every year. Depending on how competitive your area is you might even be able to charge a slightly higher rent which will cover some of the slack caused by students leaving for the summer.
You could even consider vetting your students more carefully and favouring those who plan to stay over the summer to work. This is a sound strategy, although you never can guarantee the person’s plans don’t change over the course of the year. The beauty of letting a HMO to students is that you can at least plan to a schedule. If they do move out and you live in a popular area, could you let out your property as a holiday let over the summer, or if you’re a live in HMO landlord even consider Airbnb?
Overall, in HMOs the important thing is to focus on your relationships with tenants. You are also best off avoiding that are too different; students mixing with professionals doesn’t generally work, so if you’re going down the HMO route it is always advisable to have one specific type of tenant in mind.
If you have great tenants, don’t be afraid to use them as an introduction to new ones. It doesn’t mean you can skip vetting and interviewing yourself but good, reliable tenants might know people just like them who are looking for a room to rent! This can make your job much easier because you might be able to find a tenant without having to put your property on the market.
Know What You’re Getting Into!
Managing a HMO can be stressful, and in a recent Upad survey one of our landlords even called it a full time job! Being a HMO landlord can, however, be incredibly rewarding both financially as well as from a people perspective and those you will meet.
For additional tips, advice, and access to a number of premium guides and helplines, join the Upad Landlord Club today!