A growing number of UK landlords are carrying out a HMO conversion. They are quite literally springing up everywhere. In fact, no town is without them it seems. Whilst HMO properties used to be the preserve of the student landlord, today these properties are aimed at a much wider tenant audience. These include both working people and the unemployed. And they come in all shapes and sizes. From semi-detached houses being extended right through to commercial buildings including offices and pubs. A HMO property could have as little as 3 bedrooms right up to the largest purpose built 550 bedroom ‘Co-Living’ development. The standard HMO house typically has 6 bedrooms, this being the ‘sweet spot’ for most investors.
Things to consider in a HMO conversion
Getting planning consent
In 2010, as more and more properties were being converted, planning regulations were put in place. For those who do not want to live close to students, the Government came up with a planning restriction entitled the ‘Article 4 Direction’. This direction was to be used by local councils who felt that certain areas under their control required intervention in the form of slowing down development. Essentially, Article 4 removes the automatic right to convert a standard property into a HMO or shared house. Instead an owner with a property that falls within an Article 4 area must apply for planning permission first. Such permission is very likely to be be withheld. If you are thinking of converting a property be sure to first speak with your local council to check if it falls within an designated Article 4 area.
For larger properties (7 bedrooms or more) full planning permission will always be required. This is to allow a local council to calculate the impact of a larger development on the immediate area. Things taken into consideration include the affect on the local highways. Your council will want to know if a larger property will put a materially greater strain on local people and amenities. They will also want to know of any impact on local parking. This could mean you having to convince councilors on a number of issues.
Legal constraints for a HMO conversion
HMO’s carry a greater level of legislation when it comes to both conversions and the management of them. This is primarily down to the number of people living in them. A top concern is ensuring tenant safety. With single let properties you can assume the single-family unit are all looking out for each other. Whereas in an HMO, it must be considered that each individual may not cooperate in the same way. This points to the need to eliminate such a risk particularly in the event of a fire. You can read all about the Government’s standards your HMO conversion must meet here.
The real cost of converting to a HMO
Make no mistake – HMO conversion is considerable. For a professional job, expect to invest something along the lines of £10,000 per room as an average cost across the entire property. This will then take into account the cost of a new kitchen, all new en-suites, floor coverings, fire safety equipment etc.
For larger developments that require a form of extension and or a loft conversion we use £13k as a general rule of thumb per room.
If you keep these two figures in mind when looking at potential purchases you should not go far wrong.
So how can a landlord carry out an HMO conversion and ensure they stay within the law?
1. Become well informed about the process
Invest in a course, preferably one run by a well-known expert in the industry. Be careful to ensure that any trainer or mentor has real knowledge of the HMO Management Regulations. You can find these here.
A good trainer will be able to teach you everything you need to know about HMO conversion. If you are well educated, you will have a better grasp on the practicalities and legislation behind a HMO conversion.
Best still, try to shadow a landlord who has been through the process several times. There can be no greater teacher than one who has been there and done it – professionally of course.
2. Get in touch with experienced agents
Having theoretical knowledge is all well and good but learned experience is best. Speak to a local agent you know has genuine experience in managing HMO properties. This way you can develop a better understanding of whether converting property is really the path you want to take. You are likely to find some things out about HMO conversions you wouldn’t have discovered just through reading alone.
3. Do not underestimate the time consumption of managing an HMO:
One of the main advantages of a HMO property is the potential for increased yield. However, just like most investments it is important to know that with greater return comes greater effort.
HMO conversion can be extremely rewarding on a number of levels. Beware of the possible difficulties and plan ahead. Don’t underestimate the workload, and be prepared for a more time-consuming process.
If you would prefer a more hands-off approach to HMO management then consider one of the Guaranteed Rent schemes.
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