So you’re thinking about investing in HMO properties? But how do you buy HMO? This can be a very lucrative investment, but it’s important to know what you’re getting into. In this blog post, we will walk you through the process of buying and answer some of the most common questions people have about this type of investment. We’ll also discuss why HMO Insurance is so important. By the end of this post, you’ll know everything you need to make an informed decision about whether or not this is the right type of investment property for you.
Things to Consider before Investing
HMOs, or House of Multiple Occupancy, are a type of property investment that is becoming increasingly popular. They offer HMO landlords the potential for high returns, as they tend to be rented out at a higher price than traditional housing options. HMOs can be a great property investment option, but there are some things you need to know before you buy.
The first thing you need to decide is whether this kind of rental property is right for you. They can be a great investment property, but they come with some unique risks and challenges that you need to be aware of. Here are some things to consider:
They require more maintenance and care than traditional housing options. You’ll need to be prepared to deal with repairs and tenant issues in excess of a standard BTL.
A HMO landlord may find their property more difficult to rent out unless you have researched and found the right area. It can take time to find the right tenants who will respect your property and pay their rent on time. This is why many use a local letting agents to do this on their behalf.
Do I need a HMO Licence?
You will likely need a HMO licence as they are subject to stricter regulations than other types of property investments. You need to make sure you’re familiar with all the rules and regulations governing HMOs in your area. The best way to do this is to speak to your local authority and ask your local council about:
- fire safety including changes required such as installing fire doors and smoke alarms
- planning permission
- council tax
- legal requirements e.g. gas safety certificate, electrical certificates
Not to adhere to the local authorities rules could be a criminal offence and so make sure you are familiar with the housing act and how it relate to you and your duty of care to your tenants.
Gaining Insight from Experienced Landlords
It may be a good idea to speak to experienced landlords who may be happy to give you advice. Offer to take some for coffee or out to lunch and ask some questions to gain insight, here’s a list of questions you could ask:
- What rental yields should I be looking for?
- how best to manage multiple tenants?
- what expenses are tax deductible (also consult your accountant on this one)?
- what kinds of shared facilities should be included?
- how to attract young professionals or attract students (depending on your approach)
- if they can recommend a managing agent or a selection of managing agents you could talk to
- pros and cons over a standard buy to let property
- whether a small HMO or large HMO is better (based on your approach)
- local licensing requirements
- What is needed to gain a HMO licence
Maintenance and Management
You will be responsible for maintaining communal areas of the property and providing furniture. Often, HMO Landlords will arrange for cleaning, wifi and satellite TV to make their property an attractive proposition compared to others. It’s important to make communal areas comfortable and functional to attract tenants.
Complete a tenant profile to give to letting agents if you are using one to help them search for your new tenants. This should include the type of people you are looking for e.g. students, young professionals, medical trainees. Your letting agent will check the credit rating and do any necessary credit checks for prospective tenants and make sure they have enough income to cover the cost of rent.
If you’re still interested in buying houses in multiple occupation , the next step is to do your research on the area and type of property and whether you would prefer a multi let for your first one. Learn as much as you can about the market in your chosen area, potential rental yields, property prices etc. to make sure you find the right HMO. They are particularly popular in areas where there are universities or teaching hospitals as students are more likely to live in this type of accommodation.
How to Choose an Area in which to invest?
When looking for an area to invest in, you should consider the following:
- The potential for capital growth.
- Rental yield potential
- The level of demand for housing in the area
- The proximity to amenities and transport links.
- The level of local unemployment, crime and anti-social behaviour.
- Local requirements in terms of the necessity for a HMO licence, legal obligations, health and safety requirements etc. speak to the local planning department and ask for their local HMO Officer.
For example, you might look at a city and see a large number of students living there, low levels of unemployment, lots of amenities. It may appear at face value to be a good place to invest in rental property. But in diving deeper you discover that it is an affluent area with little housing stock and property prices are high.
If your goal is purely capital appreciation and you can buy a property outright, then it could be a great investment. If instead, you are looking to focus on creating an income and will be purchasing with a mortgage, then this area could be a poor choice for you compared to others.
Take some time to narrow down your area based on your personal investment goals. Then visit at least 3 in person, spend some time walking around, get to know the different areas. Pop into different estate and letting agencies to ask them about the current market.
Once you have visited your areas it’s time to make a decision about where you want to buy!
How to Find HMO Properties for Sale
The first place to start looking is by using a property search engine. There are many of these online, and they all have different features. Some allow you to search by postcode, while others let you specify the type you’re looking for.
It’s also worth signing up to receive alerts from estate agents about new HMO’s that come onto the market. This way, you can be sure not to miss out on any opportunities. For new HMO landlords it’s important to try to build relationships with local estate agents and letting agents and ask them to inform you straight away if anything suitable comes onto the market.
If you have identified a street or streets that have exactly the kind of property you are looking for, create an leave a card, letter or leaflet through the door of each one letting them know that you are looking to purchase a house just like theirs. You just don’t know, it might be just the incentive they need to make that move they had already been considering.
Getting a HMO Mortgage
HMO mortgages are mortgages that are specifically designed for people who want to purchase this kind of rental property that will be used as an HMO.
There are a few things you need to know before you apply for an HMO mortgage.
– The type of property that you want to purchase must be approved by the lender
– You will need to provide evidence that the property will be used as an HMO
– You may have to pay a higher interest rate than someone who is not purchasing an HMO mortgage
– The maximum loan size that you can borrow may be lower than with a standard mortgage.
If you are thinking of becoming a HMO landlord, it is important to compare the different mortgages available and find the one that best suits your needs. We recommend working with a mortgage broker that can source this type of mortgage on your behalf.
HMO Property Insurance
HMO Insurance is the money that you pay to protect your home. It is like an agreement between you and the insurance company. The property insurance company agrees to provide coverage for your home if there is a disaster, fire, or other event that destroys it.
In return, you agree to pay the company a certain amount of money each month, called a premium. This is like your rent or mortgage payment for your home.
Insurance for HMO properties is similar to regular property insurance, but it can also include coverage for the property’s HMO tenants. This means that if something happens to the property (a fire, for example), the insurance company will help pay to repair or replace the building and also reimburse the tenants for any lost belongings or rental expenses (depending on the coverage you take out).
Why would I need HMO Insurance?
If you are an owner of a HMO, then you need to have the right insurance. If you are renting a room in an HMO and not the owner of it yourself, then the owner is responsible for taking out this type of cover on their building (and should be able to provide proof that they have done so). They may not cover your personal belongings and so you may need to take out seperate personal insurance for this, but check with your landlord exactly what is and isn’t covered.
How much does HMO Insurance cost?
The cost will depend on things like what kind of area it is in, how big the house is and whether or not there’s been any claims made against it previously. For example, if an area has lots of theft or vandalism problems then premiums may go up accordingly – but if there’s never been any issues with crime before then costs could actually stay quite low!
What does it cover?
It’s important to know what is covered by your insurance policy before you buy it. This way, you’ll know how much protection you need and if there are any exclusions that may affect your decision making process when choosing an insurer.
The most common types of damage which can be insured against include: flood damage caused by heavy rainfall or overflowing rivers; fire damage resulting from accidents with electrical equipment inside the building such as wiring faults; vandalism (such as graffiti) on external walls/windows etc., burglary where entry was gained via forced entry through doors/windows etc.; theft involving goods stolen from within premises using force (e.g breaking glass windows); malicious acts where someone deliberately damages property without permission (e.g smashing car windows).
What should I do if something happens to my house?
If something does happen to your home and it’s covered by your policy, then you need to contact your insurance company as soon as possible. They will provide you with guidance on what to do next and may also have a panel of approved tradespeople that they work with who can help get your property back into shape as quickly as possible.
Remember, it’s always best to be prepared and have an idea of the steps you need to take if something happens – so make sure your policy covers everything before making any claims!
If you have HMO property insurance and there’s been damage done due to an accident at home (such as flooding) then you’ll want to get in touch with them straight away. The insurer will send someone out who can help get things back up and running again quickly; they may ask for proof that this has happened though so make sure all paperwork relating to repairs etc are kept safe somewhere handy such as on top of your fridge where it won’t be forgotten about easily!
In Conclusion
Buying HMO property can be complicated. However, with the proper guidance and preparation, you’ll have no trouble finding the right property in the right location or price range that suits your needs.
If you need more information about HMO Property Insurance then please get in touch today and one of our advisors can talk you through the process. Simply call +44 20 8440 7400
If you’re looking for tips
HMO insurance is another important consideration when buying HMO property. HMO insurance protects your investment from unexpected events, such as fires or tenant damage. It’s a good idea to have comprehensive coverage for your HMO property, and make sure you’re aware of any exclusions that might apply.
