Pros and Cons of Multiple Occupancy Letting (HMO’s)
I regard self-contained properties as an investment whereas I regard HMOs as a business.
If I let a self-contained property in good condition to a good tenant, which I find the vast majority to be, I find that I have a secure let, with a minimum amount of aggravation and a reliable source of income. Generally speaking the better the property the better class of tenant I can attract, although this is not a golden rule.
If I am letting a room in a shared house however I am dealing with the lowest end of the market, I’m not saying everybody who rents a singer room is not a good tenant, far from it but invariably I can’t expect to attract what is generally referred to as a” good class of tenant”.
These tenants are generally likely to be either on minimum wages, on housing benefit, looking for a temporary accommodation, be under 35 years old or have a bad credit rating.
There will be shared kitchens and bathrooms, which often causes problems of one kind or another,which the landlord will have to try to resolve, maybe on a continuing basis.
A single bad tenant can cause havoc in a short period of time resulting in continuous complaints to the landlord (nobody wants to be woken up at 2 in the morning by tenants complaining about an overnight party going on).
I’ve heard of circumstances where a landlord has let to a rogue tenant, whose behaviour was so bad that all the other tenants eventually left.The rogue tenant brought in other occupiers and the property was completely trashed. It took the landlord 6 months to get possession ,and many thousands of pounds to remedy the damage.
I have found that the incidence of alcohol and drug abuse is far more likely to occur in HMOs.
If all this isn’t bad enough the landlords needs to comply with exactly the same letting legislation as they would need to do in respect of an AST.The tenant has full rights of possession. (This does not apply if the landlord is living in the same property as the tenants) In this instance they occupy under a lodger agreement which gives minimum occupancy rights.
If the property is let to 3 or more people, one of which is not related, and they share a bathroom and kitchen, the property is classed as HMO.This means that the landlord will need to comply with all the regulations appertaining to HMO properties, which are more erroneous than regulations relating to single occupation ( full details of HMO requirements download
Some landlords either through choice or ignorance do not give their tenants an AST, or in fact any documentation at all.They rely on the tenant’s ignorance of the law feeling they can just tell the tenant to leave.Very often they seem to be getting away with this but they are leaving themselves wide open, because without a proper agreement it can be a nightmare trying to get possession. It only takes one tenant “in the know. and this type of landlord finds themselves in a difficult and potentially expensive position.
It is a criminal offence to put any kind of pressure on the tenant to leave the premises.
The main reason that people consider letting a property as an HMO, rather than as single unit is that initially the return seems to be considerably higher. There are however points to be considered in the comparison:
The landlord would be responsible for paying the rates on the premises together with the electricity and the gas.
The incidence of voids are will inevitably be higher, thus affecting the overall income.
Cleaning the common parts, kitchens and bathrooms will be an expense.
Quite often rental need to be collected weekly which involves extra expense and of course time.
There would generally be a higher rate of wear and tear to the premises, and contents, which needs to be costed in.
I am the first one to admit that I am not a lover of HMOs,a view shared by most letting agents, who refuse to have anything to do with them,except a few who deal exclusively with student lets.
It was very different in the” olden times” when a property, if bought correctly, could be purchased with 100% finance, give a 30% return and there was no legislation affecting the letting of the property ” Those Were The Days”.