I had a great night Tuesday at the Property Vault listening to Rick Walton speak about his property investment strategy. I am also happy to announce that from September I will be hosting the Property Vault Medway at the Innovation Centre in Chatham, the networking for property people where no selling is allowed and all ticket proceeds go to charity. The first date is set for the 27th September, so put this date into your diaries!
Rick mentioned about using a triangle of investment, whereby single lets form 50% of his portfolio, HMOs 35% and high risk developments 15%. The single lets form the bedrock producing stable income and predictable capital growth. The HMOs produce higher income but are slightly higher risk, therefore forming a smaller percentage than single lets.
So HMOs should be viewed as a medium-risk investment with high rewards. The risks are potential legislation changes, potential problem tenants and void periods if the rental demand for HMOs slow down. But I believe investing in Medway HMOs can be made relatively low risk and high reward if you investin the right area and you know your rules and regulation. If you want advice on either of these points then feel free to get in touch.
This post is aimed at clearing up that second point so you have a better idea of what you are doing.
What is a HMO?
A HMO is any house or flat rented out in the private rented sector which is not occupied by a family, where the number of occupants is over three. If you have three unrelated people renting within a two-bed flat, that is technically a HMO. If you have three rooms let in a house to different tenants, that is also a HMO. If you have a family, or two unrelated people, renting a house that is not a HMO.
The problem is that when a lot of people refer to a Medway property as being a HMO, they are referring to it as being a licensed HMO. A lot of people have no idea that their current property may already be an unlicensed HMO.
What is a licensed HMO?
The Housing Act 2004 brought in what is known as mandatory licensing for all HMOs which meet certain requirements. For a HMO to need licensing it must meet ALL three of these conditions:
- Three storeys or more.
- Occupied by five or more persons.
- Those five persons form more than one household (i.e. are unrelated people)
I must stress again, for a HMO to need mandatory licensing it must meet all three of these conditions. For example, if you had two floors but six people then that property would not need to be licensed.
You will have to pay a fee for a licence of £974 which will last for five years. The licence will come with conditions to ensure standards in the building are kept. These conditions may also limit the number of occupants allowed in the property.
If your room sizes do not meet the minimum sizes stipulated by Medway council, then you may encounter problems with getting licensing and would either need to alter the building or limit the number of occupants. You can find more information on room sizes at the Medway Council HMO guidance.
Do I need planning permission?
If you wish to have six people or less in your property then this would be classed as a permitted development in planning law and automatically granted with no need to contact Medway Council planning department.
The only exception is if Article 4 applies in your area, and you can see a list of roads in Medway where this applies here. In these areas, you need planning permission to change the property to a HMO regardless of how many floors the property has or the number of occupants in the property.
So if you want to have more than six people in your Medway HMO, or the property is in an Article 4 area, then you would have to apply for a change of use from C3 to C4.
What about health and safety regulations?
If your HMO is licensed, you must conduct Portable Appliance Tests (PAT) every year in addition to 5-yearly electrical inspection reports. You must also have interlinked smoke alarms, a carbon monoxide alarm on every floor near gas appliances and fire doors with thumb locks. You will need to have clearly displayed contact information for the licensed manager and give occupiers a statement of the terms on which they occupy the HMO.
If your HMO is not licensable, you would have to comply with the standard housing rules and regulations. However it is recommended to at least install interlinked smoke alarms and fire doors.
Is there anything else to watch out for?
The Housing Act 2004 allows local authorities discretionary powers to extend licensing to other categories of HMO which are not subject to mandatory licensing. This would be the case if Medway Council deemed that HMOs in Medway were causing anti-social problems. Medway Council has said in their guidance, which can be viewed here, that this is not applicable at the moment. Seeing as there is a housing shortage across the country I don’t see this happening soon.
However this does raise an important point and advice I would give to all of my Medway Property News blog readers: refurbish your properties to a high standard and make sure your properties comply with licensing requirements in case additional licensing is brought in. In particular, make sure that room sizes comply with minimum requirements because if additional licensing is brought in five or ten years time you may be stuck with rooms that you cannot rent out.
I hope that was helpful, and if you have any questions please do not hesitate to get into touch. My email is firstname.lastname@example.org.