HMO or house of multiple occupancies is essentially a home that multiple people occupy and pay rent for- usually three or more people who are not from the same household (i.e. the same family).
They most likely have their own designated rooms within the house but share communal facilities such as the bathroom, kitchen, or toilet. If you are a landlord renting a house out that fulfills these conditions and at least one of those tenants pays rent, then you are obliged by law to get an HMO license.
There are currently three types of licenses that you could apply for, these include: mandatory, additional, and selective licensing depending on your rental situation. The following is a brief explanation of what each type of licensing is and how/ if it applies to you.
Mandatory licensing: constitutes the basic definition of what an HMO is – three or more unrelated people who share a house (of which at least one pays for rent for the accommodation).
Additional licensing: is another form of licensing similar to the mandatory licensing scheme but it applies to houses that don’t necessarily meet the mandatory licensing requirements. The rules and regulations for additional licensing can be different for each council depending on the rules and regulations pertaining to that specific council.
Selective licensing: was introduced to uphold a minimum standard of the living conditions of the house for tenants living in an HMO.
What are the benefits of HMO for landlords?
- HMO rentals are a more flexible and affordable option for those looking for a cost-effective way to rent a property without compromising on space necessarily. Rent is usually accumulated on a per room basis, which when added up, could be more profitable than renting a house on a buy-to-let basis only.
- The rental risks associated with investing in an HMO are quite low compared to renting to a single household. You still receive income even if only a single room is occupied as opposed to the house standing empty if you don’t have a tenant to occupy the whole house.
- The demand for HMO housing is increasing as people seek out a more affordable alternative to renting out a property. HMOs are also relatively stable in the property market and remain unaffected by changes in upswing and downswings in the property market which can vary from season to season.
- Licensing requirements are also becoming easier to obtain in certain councils for privately owned HMOs.
- As an HMO landlord, you are also more likely to receive tax benefits associated with the costs of adding on or extending the property (also known as revenue costs).
- HMOs can also generate a higher than normal return on investment that is not determined by the number of properties that you own but rather by the occupants within each household who are each paying rent on an individual basis.
If you interested to learn more about HMOs and their licensing requirements, then visit HMO license to find out more about it.