What is a House of Multiple Occupancy (HMO), and do I need a licence?

  • 3 years ago
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Property investors have considered HMOs (also known as houses of multiple occupancy or houses in multiple occupation) as one of the most attractive investment methods for a long time. It essentially helps them receive more income from a single property. If you too are planning to explore this method, this guide is for you. It’ll help you get the answers to all your questions regarding HMOs.

What’s an HMO?

An HMO refers to a residential building that’s rented by three or more tenants forming multiple households. Here, the bathroom and kitchen facilities are shared between the tenants. A converted house can also be considered as an HMO providing it has one or multiple flats, which aren’t entirely self-contained. It’s also important to note that the property has to be used by the tenants as their main or only residence. If you rent out your property to migrant workers and students, it’ll be considered their main or only residence and hence, the house will fall under the category of HMOs. The same will be applicable if the property is used as a domestic refuge.

What isn’t an HMO?

Your property will not be considered an HMO if it meets the following aspects.

  • You and your household are resident in the property with a maximum of two tenants
  • The main use of your house isn’t residential accommodation
  • Occupants are forming a single household
  • Occupants aren’t using the house as their main or only residence
  • The building is controlled or managed by a public body such as the NHS or police

Why you should invest in an HMO

Let’s take a quick look at a couple of reasons why investing in HMOs has become a preferred option among property investors.

  • Less vacant periods: When it comes to renting single BTL property, vacant periods are an unavoidable part of the process. However, with HMOs, this effect on your income is relatively lower as there are multiple tenants. If one moves out, your financial security will still be there.
  • High demand: Young professionals and students, for whom renting an entire self-contained flat or house isn’t an economically viable option, usually turn to HMOs to rent individual rooms. It offers them a flexible and affordable living option than single-tenant properties.

Does your HMO need a licence?

Before delving deeper, you need to understand the difference between a large HMO and a small HMO.

If your HMO is minimum three storeys high, has a minimum of five tenants forming multiple households, and has kitchen and bathroom facilities shared between the tenants, it’ll be considered a large HMO.

And if the HMO has a minimum of three tenants with other conditions remaining the same as a large one, it’ll fall under the category of small HMOs.

If you’ve got a large HMO, you’ll be required to obtain a licence from the local authority. It’s important to note that even if you own a small HMO with less than five tenants, a licence may still be required. Therefore, we strongly suggest you check this with the local council. You should also note that some large HMOs, where there are seven or more tenants, come under the Sui Generis use class. If your HMO falls within this class, you may need to obtain planning permission from your local authority instead of a licence.

Closing thoughts

While HMOs tend to produce more security and greater yields than traditional rental properties, they involve a lot of work on the part of the landlord/investors. These typically include dealing with building maintenance, regulatory compliance issues, etc. However, if you can adhere to the rules and regulations, investing in an HMO could be a win-win situation for both you and your tenants.

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