Here are five tips to creating your successful HMO business that will give you the income and financial security you need. Before we delve into those lets recap on what an HMO (Houses of Multiple Occupancy) property is: simply it’s a house occupied by 3 or more unrelated people who share common facilities like a kitchen or bathroom. HMOs can also be called Multi-lets as you let out the rooms to multiple people. We like HMO property because they are the foundation of so many other strategies and they will make you the most profit for the least amount of effort (if you know what to do!)
Now is the perfect time to build your professional HMO property business because there is high demand for affordable housing, the cost of borrowing money is low, property prices are rising so you will increase your equity over the long term, it’s easier than ever to set up and run a professional HMO, and the tax changes are incentivising professional landlords to do so. Here are those five tips to help you get started:
1. Do you want Ownership or Control? (or both!)
The beauty of HMOs is that they are flexible and you can benefit by owning them or just controlling them. Buying HMOs means you can have the triple benefit of getting an immediate uplift in value by converting a single let house into a commercial HMO property, the long-term increase in equity as property prices increase, and the extra income from renting out the property by the room. If you don’t want to buy and just want the benefit of getting high cashflow fast then controlling someone else’s HMO via ‘Rent2Rent’ is for you. Many people do both (me included) because 95% of the processes are the same. You need to be clear from the outset which is the route you want to go down as it will determine the type of HMO business you will create & how you will market yourself.
2. Know Your Local Rules
Despite the generic definition I shared above, historically the rules and licensing requirements surrounding HMOs often caused confusion because the terms used have varied across different local authorities. Different HMO classifications meant different licensing requirements were applicable but this has now been simplified. From 1st October 2018 across England and Wales the definition of an HMO under the Housing Act 2004 states it is any property occupied by five or more people, forming two or more separate households.
When setting up your professional HMO business and you want to invest in property, if it has five or more people renting from you on an individual tenancy agreement then you will need an HMO licence. If your HMO business is operating as Rent2Rent and you find property that also can be rented out to five or more people then you will also need a licence. As you want to have a professional HMO business please make sure you comply by the rules!
3. Protection Your HMO Business
A professional HMO business also needs the appropriate protection from a legal and insurance point of view. If you are buying or controlling HMOs with mortgages then you need to ensure they have HMO-specific mortgages otherwise you or your landlord might be committing mortgage fraud! If you want to run a Rent2Rent HMO business then you will need a management contract for you, your HMO landlord and/or letting agent; and in all cases you will need an assured shorthold tenancy agreement between you and your customers (some call them tenants!). If you are taking deposits then you need use a government-backed tenant deposit scheme, and if you are collecting customer details then you will need to join the ICO (www.ico.org.uk) and comply by data protection rules.
Likewise you need to have HMO-relevant insurances (residential and buy2let insurance won’t do), and if you are operating a Rent2Rent HMO business then you will need Professional Indemnity Insurance too. The best thing to do is contact an independent insurance broker such as Falcon Insurance to get the most suitable protection for you.
4. Cater To Your Target Market
Who are your target customers? It’s worth doing some research upfront about who is the likely customer for your HMO rooms to make sure you will be meeting local demand and not left with empty rooms! A few simple ways to do this are to ask local letting agents, local HMO landlords and checking out on Spareroom the type of people looking to rent rooms in your area.
Once you have a clear idea on this you need to find out what type of accommodation and facilities they expect, and if you provide them will you make more profit in your HMO business? Again you can check out what your customers are asking for & what your local competition are offering on websites like Spareroom and Easyroommate etc.
I have seen plenty of people provide very basic facilities in their HMOs and then wonder why their target market higher-paying professional tenants don’t want to live there.
Provide services they expect.
Future-proof your business.
5. Systemise Your Business
The most important tip for any professional HMO business is to systemised everything you do otherwise you could be working hard in the business and not on the business, and will probably not be making the high cashflow you expected when you started. I see so many people initially get enthused about HMOs and then 12 months later are fed up because they are working hard – and they just don’t need to! This is the same for HMO owners and Rent2Rent HMO businesses. One lady I met at a networking event was exhausted running one HMO because she was there every day and had become the letting agent, maintenance worker, agony aunt, social worker and peacekeeper!
I recommend you think about the individual processes that are needed in the business, write them all down and delegate to your power team. What’s even better is that so many of the systems and Apps we use to monitor our HMO business cost nothing – and we now spend 25 minutes a week reviewing our professional HMO properties because the systems set us free.
If you want to discover more on how to maximise your profits from HMO investments and Rent2Rent HMO, and get all the tools needed to build a legal, profitable and scalable HMO business come and join me on the next HMO Pro course.
Latest posts by Jamie Madill (see all)
- Five points to consider when building a professional HMO business - 3rd April 2018
- 3 successful HMO licensing secrets every property investor should know - 4th December 2017