Whether you are looking to get into property investment and are looking for an HMO definition or you want to expand your property portfolio to include properties with multiple tenants, this page provides everything you need to know about Houses of Multiple Occupation.
What Does HMO Mean?
An HMO, or House in Multiple Occupation, is a single property where a number of unrelated tenants, who have their own rooms, share some living space such as a kitchen and bathroom. There must be a minimum of three tenants forming more than a single household in order for a property to be considered a genuine HMO.
Large HMO Definition
A large HMO is one with three storeys and a minimum of five tenants. Although it may not be necessary to have an HMO licence for a standard HMO property, it is likely that you will need a licence for a large HMO. In both cases, there are HMO regulations that need to be adhered to, otherwise you could fall foul of local planning laws, resulting in financial penalties and fines. You may even be forced to undo any changes that you have made to the property in the first place. Different planning departments of different local councils have their own rules, so you do need to do your research thoroughly before embarking on an HMO development project.
Whether you own a house and let it out to three professionals, or a private halls of residence, these both fall under the definition of HMO. Converted flats, hostels, bedsits, and shared housing also fall under the category of HMO, but it is the number of floors the property has as well as the number of tenants that share the property that will determine whether it is a standard or a large HMO.
What Is An HMO Household?
Officially, an HMO is described as a single property that contains three or more households. A household can be considered an individual living alone, a couple living together or relatives living together. A couple living with a third person would only be considered two households, while three friends sharing a flat would be considered three households and may require an HMO licence.
What Are Article 4 Directions?
Until recently, a small HMO did not require an HMO licence, but many local councils have used a legal process called an Article 4 Direction in order that they can more accurately manage the number of these properties they have within their boundaries. Check with your local council to determine whether they have an Article 4 Directive; if they do, then you will need to apply for a licence especially if you intend to change a property from single-let to a multiple-let home.
Some major councils, including Manchester council, have this directive and requirement in place but not all. This means that it is extremely important that you check with your local council before proceeding with any HMO investment plan.
How Long Does An HMO Licence Last?
An HMO licence lasts for 5 years, and investors need to renew the licence if they wish to continue renting the property out as a house in multiple occupation.
Exemptions
There are some exceptions where properties that fall under the HMO definition would not be considered a house of multiple occupancy and do not require a licence. A property with only two people or households does not qualify as an HMO, even if the landlord also lives in the property. Properties that are owned and operated as public housing, and those properties that are already regulated, such as care homes, do not need HMO licences because they need to meet existing regulations.
Purpose built flats are exempt. The only time that a block of flats might fall under the HMO definition is if it is a house or other property type that has been converted into flats. Alternatively, if a single flat has three or more unrelated tenants staying in separate rooms of the flat, then this might require an HMO licence, depending on local council planning requirements.
Are HMOs A Good Investment?
Converting a single let property to an HMO offers improved rental yields of up to 12% or more. HMO properties can be targeted at working professionals, while student accommodation in university cities have proven to be a sound HMO investment opportunity in recent years and they continue to show their value. This type of investment isn’t necessarily the right choice for everybody; managing multiple tenants does require additional work or extra resources, but this is repaid in the form of extra cash income, and using a company like OHPI can help to greatly relieve the workload.
What Is An Article 4 Planning Restriction?
An article 4 planning restriction is a legal action that has been taken by some local councils and that enable them to control and manage the number of HMOs in their ward. It also enables councils to ensure that safety and living standards are met with this type of property. A local council must apply for an Article 4 planning restriction if they want one; they aren’t offered automatically. This means that if your local council, or the local council where you want to invest, hasn’t applied for an Article 4 restriction, then you will only need a licence for a large HMO property.
As well as understanding the definition of HMO, you need to determine whether a property and its tenants qualify as a small or large HMO, and whether your local council requires that you have an HMO licence. You should take into account any exemptions that may negate the need to acquire a licence.
At OHPI, we have the experience to help you deal with all of these and any other questions related to houses in multiple occupation. We can source property in some of the best locations, that have the greatest potential for rental yield, and we can arrange the renovation and conversion that is required in order to establish your HMO portfolio. Contact us today to discuss your property investment proposal and to see how we can help optimise your returns.