Changing to an HMO 28 Jun, 2017

Changing to an HMO

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Letting a property in Edinburgh as a House in Multiple Occupation (HMO) is one of the best ways to release the extra rental value in your home. An HMO is a property licensed by the City of Edinburgh to allow three or more unrelated people to share a rented property. It can be quite a complex process but the potential returns make HMOs a very attractive proposition for landlords and investors.

Successful HMOs in Edinburgh

Edinburgh University is ranked 19th in the world and 5th in the UK, so it’s no wonder the city has a large and thriving student population. Almost 60,000 undergraduate and postgraduate students were enrolled in higher education institutions in Edinburgh in 2016 and with it being the UK’s second largest financial sector, there are also thousands of young professionals who call it home.
Flat-sharing is immensely popular among these demographics and consequently, HMOs are incredibly sought-after and competition amongst tenants can be fierce. This means higher rents and properties spending less time vacant.

A recent Citylets report has revealed that the average rent for a three-bedroom property is £1,268 and £1,703 for a four-bedroom. The average time to let is 36 and 42 days respectively, with 13% of 3 beds and 5% of 4 beds being let within a week. Couple that with the fact that HMO investors have received higher returns on their investment than the average buy-to-let investor and it’s easy to see why HMOs make a very attraction proposition.

How do I go about it?

The rewards may be attractive, but the reality of establishing and managing an HMO portfolio is anything but straightforward. There are complex compliance and legal issues which need to be fulfilled to the letter and penalties for failing to comply can be hefty.

These include things like socket and light fitting requirements, installation of self-closing fire doors, safety certificates and minimum room sizes. Your HMO will need to be fully inspected and any upgrade work completed before a licence is issued. That licence must be renewed every year.
Legal requirements can and do change as the HMO sector is quite heavily regulated, so it’s best to appoint a reputable agent who can manage all aspects of your HMO property from licence, safety and renewals to securing tenants and undertaking inspections and maintenance.

I’m interested in investing

If you’re looking to buy a property with the intention of turning it into an HMO then there are a few key things to consider.
Firstly location, location, location. To make the maximum return on your investment, especially if you are aiming for the student market, you need to make sure your property is near one of Edinburgh’s many college or university campuses.

How much work will it take to turn it into an HMO? Some properties can be brought up to standard very easily, but others might be costly and take time. What potential does the property have as an HMO? Is it likely to experience capital growth? These are all questions to you need to answer before you buy.
You also need to be wary if properties are advertised as HMO compliant because they may not in fact meet the standards required. If you are interested in investing in a buy-to-let HMO, especially if you are overseas, the experts at The Flat Company can help. We provide a bespoke service from finding your perfect property and undertaking upgrade work and interior decorating to applying for the licence and finding the best tenants.

Adding an HMO property to your portfolio is one of the best ways to increase your returns and with a good property manager at your side, it can be made easy too.