The New HMO Licensing Regulations – What You Need To Know

Opportunity or Threat?

Are you ready for the new HMO licensing regs?
This is a must-watch if you’re a remote HMO investor and you want to stack the cards in your favour and secure the right property, in the right location with the right management team.

Prefer to read, rather than watch? Here are the key points...

The new HMO regulations are due to come in from 1st October 2018 and state that any property with five or more people from two or more households will have to have an HMO licence. This is another barrier for people wanting to start in the HMO market so is an opportunity for professional operators.

If you're an investor, wanting to invest in HMO's outside of your area, this video is for you. It's going to walk you through all the things you need to look out for to ensure that your HMO investment really works for you.

These are the things you need to know to ensure that you're choosing the right property, in the right area with the right agent, and that your HMO deal really works for you, even under the new licensing conditions.

So, there is great opportunity. We all know that HMO's have the capacity to deliver much, much higher returns, and it's often that you get over £1,000 net per month on an HMO, whereas on a similar value of single let you might make maybe £200, £300, £400 a month, sometimes less. And with the new tax regimes that are coming in, it's really important to make your investments work hard for you.

With that opportunity, there are also risks. Over the last 10 years, while the popularity has also soared, there are plenty of real life horror stories, and there are lots of complaints of over-supply, market saturation and lower rents. In Newport, in Wales for example, where we're based, we see rent sometimes lower than £300 a month for a double room and £350 for a room with en suite.

So, what I'm going to do tonight is tell you about what we do to stack the deck in our favor, and share with you some of our HMO secrets, that take the guesswork out of HMO investing, so that we can get it right every time, and get the HMO returns without the hassle of DIY. And make your money work harder than you do.

Location, Location, Location

The first step is straightforward. You need to buy near a people hub. Now, that could be a university, hospital, a large employer. The more people hubs that are in your location, the stronger that location is as far as HMO's concerned.

When you buy in the right area, whatever happens to the marketplace, properties in the right area at the right price, will always let.

You need an area that's got investment going in, or that's already buzzing with good transport links and ideally for young professionals bars and restaurants.

You can check out Spare Room to assess demand in your area.

The most important thing to do is to speak to local HMO experts in the area that you're choosing to invest in, because there can be properties on the same street, and one will work and one won't. It could be that one side of the street is OK and the other isn't. So you do need to get that local expertise. Once you've identified your property it'd be wise to get an HMO expert to check it out and let you know their views on location and viability.

Size Matters

There are minimum bedroom sizes, typically 6 1/2 meters squared, but they vary all over the country. With the new regime from the 1st of October across England, we'll see unification of what those minimum bedroom sizes will be for properties for 5 people or more. You'll also need to consider the minimum communal area size requirements.

Then you've got the bathroom to tenant ratio which varies. And you'll also need to  be also conscious about the fact that we could be seeing council tax re-evaluation on a per-room basis where there are en suites. This is already happening in some parts of the country. 

So, again, the advice is to speak to a local HMO expert, and ensure that before you purchase any property, that it will meet the new legislation after October 2018, and that it's going to work in terms of location as well.

Sourcer Savvy

When you get a deal from a sourcer who isn't local and isn't in HMO management be sure to do extra due dillegence. We saw an example from a sourcer recently which was allegedly below market value but was actually overpriced! See the full story here.

Agent Advice

A good agent will make your investment work for you by delivering cashflow month after month and year after year. 

A good agent will take away the hassle and the risk of HMO's. You won't have to struggle to fill the rooms, you won't have to worry about nightmare tenants, or high costs of maintenance. You don't have to go through all the red tape, they will do everything for you to keep your property fully compliant, and give you a passive investment.

Click here for the 5 questions you must ask before choosing an HMO letting agent.