Landlords – here’s how to convert a property into an HMO

The cost-of-living crisis is putting the squeeze on everyone and – despite the fact that the UK has experienced a year of rapid rent increases – that includes landlords.

One way for landlords to maximise revenue from their portfolios is to consider converting their single let properties into HMOs.

In general terms, HMOs require more work on behalf of the landlord, but they also have the potential to return higher yields. Return on investment for a single let might be between 5% and 7% but an HMO could offer an ROI of 15% to 20% – or even higher.

So what is an HMO?

An HMO, or House in Multiple Occupation, is usually a large house where 3 or more unrelated people live in separate bedrooms but share some common amenities like the kitchen and, perhaps, a laundry. It’s sometimes called a ‘house share.’

All large HMOs – defined by the Government as a property rented to 5 or more people who form more than 1 household – require a licence.

But in many local authority areas, all HMOs (even those with just 3 tenants) need a licence which is valid for a maximum of 5 years. Landlords will need to check with local councils to find out if their property is in a licensed area.

Landlords must ensure the house is:

• Suitable for the number of occupants (see below);
• The house manager (the landlord or agent) is a ‘fit and proper person’;
• Gas safe checked every year. (Certificates must be sent to the local authority);
• Fitted with smoke and carbon monoxide alarms that are checked and maintained;
• Certificated for electrical safety on all appliances – all documentation to be provided to the local authority on request.

There are also regulations related to living space for tenants.

• Rooms for sleeping accommodation must be at least 4.64 square metres which is deemed suitable for a child under 10 years old.
• A minimum of 6.51 square metres can be used by only one person over the age of 10.
• A room of 10.22 square metres minimum can be used by two people over the age of 10.

There may be other criteria to meet depending on the licensing requirements of the local authority.

Anyone found renting an unlicensed HMO in an area where they are compulsory will be subject to an unlimited fine.

What do you need for a conversion?

Landlords need to make sure that tenants will have sufficient space, that the lay-out is safe (with special regard to fire safety) and that all the appliances are reliable and have been tested.

Taking, for example a three-bedroomed house, there are a number of ways that landlords might consider adding living space to the property.

These might include:

• An extension to the rear of the property;
• Adding en-suites or galley kitchens to bedrooms;
• Expanding into the loft to create more bedrooms;
• Enlarging the kitchen to create a communal dining area;
• Extending into a garage to create additional living space.

Some of these measures will require planning permission and will involve extensive building expertise, so landlords should seek professional advice from their HMO agent or other specialist to make sure their property is suitable for conversion.

Additional safety requirements

Besides the annual Gas Safe check, the Electrical Installation Condition Report and test certificates for all appliances, all furniture and furnishings must be labelled to show they meet the fire resistance regulations.

Landlords will also need to install fire doors, ensure that tenants do not obstruct them or block fire exits and know what to do in the event of a fire. They might also wish to consider installing emergency lighting.

Some local authorities may insist upon further safety measures and landlords should check with the relevant council department.

Some final thoughts

HMOs offer a tremendous investment opportunity if landlords want to convert a single let property.

But there are more regulations with which to comply and more risks in terms of finding the right tenants. Insurance premiums tend to be higher, too.

Some commentators believe that HMOs are more resilient to economic fluctuations. There will always be a demand for this type of accommodation – even during a recession – and if one tenant leaves, there isn’t that much damage to revenue.

Here at Progressive Lets, we can help you with any aspect of letting property in Peterborough and the surrounding areas. To find out more, please contact us today.

We have an extensive service for landlords, and offer an Advanced Rent Option, which you can view here.