HMO Basics: A Guide For New HMO Investors

What do I need to know to get started with HMOs?

There are a number of benefits that come with investing in HMOs, but there are also a number of areas new HMO landlords need to consider when starting out.

Many investors are leaving the buy-to-let sector and opting for HMOs to maximise rental yields and generate better cash flow. If a tenant vacates or falls behind in rent, HMO landlords can receive rent from the other tenants, minimising the financial impact of void periods and rent arrears.

Demand is high for HMOs and co-living spaces, particularly among students, professionals and social renters. And a number of investment locations across the UK are performing particularly well for HMO landlords. It’s all about attracting the right tenants to your HMO property and picking the right investment location.

When it comes to HMOs, there are higher starting and operating costs and additional rules HMO landlords need to be aware of. HMO property management, legislation, landlord responsibilities and licensing are all areas new and experienced landlords need to be knowledgeable about.

HMO Property Management

As there are more tenants in HMO properties than single buy-to-lets, property management naturally takes more time and effort. There are a number of areas to consider when it comes to managing HMO properties, including:

  • Deposits
  • Tenant referencing
  • Tenancy agreements
  • Inventories and inspections
  • Utilities and bills
  • Managing tenants

Property management can be difficult for HMOs, especially if you aren’t prepared. Effective management is key to building a sustainable HMO portfolio. And even if you plan to outsource the property management of your HMO, it’s still important to understand the ins and outs of it. 

HMO Legislation & Landlord Responsibilities

There are a number of certificates that HMO landlords need to keep and renew and rules and responsibilities to be aware of. In recent years, there have also been a number of legislative changes to keep up with.

While HMO legislation is a dry topic, these are your legal obligations. You must be fully aware of these whether you’re new to HMOs or a veteran HMO landlord, because if something goes wrong, the buck will stop with you!

There are specific minimum standards that need to be met. This includes fire safety standards, amenity standards, minimum size requirements and other general standards. And as a landlord letting a residential property, you have a legal responsibility to ensure the property is safe for your tenants. 

Additionally, there are specific gas and electrical safety requirements and checks that need to be fulfilled. There are also minimum energy efficiency standards that need to be met. Currently, every privately rented property needs to have a minimum rating of Grade E. And this could be further increased later on. 

The process of gathering documents or ticking boxes isn’t enjoyable or easy, especially when you’re the one pulling it all together. However, we all need to accept it and get on with it. Here’s a few of the certificates you need to have in place for your HMO property:

  • Gas Safety Certificate
  • Electrical Installation and Condition Report
  • Portable Appliance Tests
  • Fire Detection System Certificate
  • Emergency Lighting
  • Energy Performance Certificate
  • HMO license

This is not an exhaustive list of all of the relevant HMO documentation and legislation. To find out more about your legal obligations, read the Housing Act 2004 and Housing health and safety rating systems for some bedtime reading.

HMO Licensing

HMO licensing can be particularly confusing. One of the main reasons for that is because it’s enforced differently across the country. And within the guidance, there are a number of grey areas as well.

Some HMO properties don’t require a license. For HMOs with three or four tenants, this constitutes a ‘small HMO’, and you will not need a license, unless there is an additional licensing scheme for your local housing authority.

In England, all large HMOs, which have five or more tenants, need a HMO license. A license is valid for five years. And you need to have a separate license for every HMO you run that requires licensing.

Landlords could be fined and ordered to repay rent if you don’t have a HMO license for a property that should be licensed. Additionally, if an assured shorthold tenancy agreement is in place, you wouldn’t be able to evict the tenants using a Section 21 notice if you don’t properly license your HMO. Oh, and your insurance could be invalid too. 

It’s important to keep up with any changes to the HMO sector and ensure you are compliant with all of your legal obligations as a HMO landlord. Reach out to your local housing authority if you are unsure about any of the licensing requirements or standards you are required to comply with. They’re usually happy to advise landlords on this!

For more helpful resources and guides about starting and scaling your HMO business, sign up for The HMO Roadmap today! And if you’d like to get advice, support and insights directly from experienced HMO landlords, join us over on The HMO Community Facebook Group.


About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!