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When HMO's go BAD!

Monday 11 December 2017

By Carl Agar

If managed correctly and fully occupied - then HMO properties are arguable one of the best property types to invest in.

Get it wrong, though, and you will find them unforgiving and potentially disastrous.

I have often said to the enthusiastic newbie HMO investor (often fresh from a training course) that HMOs on paper do look like great investments, but you really need to know your market before you invest and have expert management in place.

What the training provider often misses out of their well-formed courses is the social dynamics that exist within HMOs and the potential impact that can have on the bottom line!

HMOs are also subject to lots of regulation and changing legislation, if you don’t understand this and consequently fall foul, then the fines can be huge.

Here’s just a few examples of how and when a HMO can go BAD:

  • Landlord prosecutions

Managing a HMO is far more complex than managing a simple buy-to -let. You must comply with HMO management standards and any applicable HMO Licence, and failure to do so can lead to colossal fines. Landlords need to be conscious of room sizing, amenity provisions and fire safety to name just a few. Not a week goes by in which I don’t read about another HMO Landlord being fined upwards of 20k!

  • There’s a higher turnover of tenants in a HMO

By their very nature the tenants of a HMO are transient. Nobody grows up dreaming of settling down in a HMO - for most people this type of accommodation is temporary or a stepping stone, suiting a particular requirement at a specific time. Consequently, tenancies are shorter and void periods are more likely. If you get this wrong, you can find yourself with two or three empties and hovering around break-even point before you know it!

  • Saturation

Understanding the local market is essential when buying an HMO, and it’s especially important to look out for any Article 4s that may have been imposed by the local authority restricting the development of further HMOs. This is a prime indicator that an area may be reaching saturation, and in such places you can quickly find yourself with declining rents and increasing voids.

  • Parties often cause more damage than the deposits

HMO’s are synonymous with anti-social behaviour. The damage caused by just one wild party can be destructive - and any deposit barely covers the cost of the damage. And therein lies another problem when it comes to HMOs; rarely do young professionals – who tend not to throw wild parties and tend to pay their rent on time - opt for a room in an HMO. The result is, as the owner of an HMO, you can end up with potentially problematic tenants quite a lot of the time, with the typical tenant profile being students and low-income workers.

  • One bad apple (or tenant) can upset the entire apple cart

I have seen on many occasions that a healthy 6 bed HMO can be reduced to a single tenant in a matter of days. Typically, one bad tenant can create so much disturbance in a building that the other tenants just leave without notice, leaving the Landlord with the challenge of removing the offending tenant and reoccupying the building simultaneously.

When HMO’s go BAD! The above is a lot to think about but certainly worth thinking about of you ate about to invest in a HMO!

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Article by:

Carl Agar

Carl Agar

Carl Agar is the managing Director of Big Red House letting agents, founder of the Home Safe Scheme, Yorkshire representative of the National Landlords Association - the UK’s largest landlord association, and a landlord and investor.