Hello Readers,
If you’ve been following my blogs, you’re well aware of my strong advocacy for investing in HMO properties.
Not only do HMOs generate an excellent return, they also save tenants over £11,000 per year, so before we look at some of the common pitfalls HMO landlords make I thought I’d share a selection of previous articles you might want to brush up on:
- HMO vs Single Let – Which Strategy Is Best?
- HMOs Have The Best ROI. FACT!
- HMOs benefit from the highest rental yields – FACT
- Fact… Medway HMO Capital Values Outstrip The Market Average By 32%
Ok, so with HMOs generating such strong returns you could be forgiven for thinking it’s the easy route.
I’m sure you’ll have heard the horror stories of an HMO filled with nightmare tenants who vandalise it, don’t pay rent and to top it off leave the landlord with compliance and licensing issues.
For example, last year a Sittingbourne landlord was slapped with a £25k fine for operating an overcrowded HMO, but most recently in late February, a Gravesend letting agent was fined £30k for renting out unlicensed HMOs. These are some big fines that could have been prevented by following the right legislation.
I thought I’d take some time this week to outline six of the most common pitfalls that I come across when speaking with HMO investors (both new and experienced).
1. Neglecting legal requirements and licensing
Every local authority area has slightly different licensing requirements. For example, in Medway a licensable HMO can have 4 bedrooms sharing one bathroom whereas in Maidstone 5 people can share a bathroom in a licensed HMO.
Landlords who operate without the appropriate license can (as outlined above), receive significant penalties including fines up to £30,000 or even criminal prosecution.
My advice is to always consult the local council to check their requirements BEFORE purchasing a property
2. Inadequate property maintenance
Regular maintenance is not just about preserving property value; it’s a legal obligation. Landlords must ensure that all amenities are in proper working order and that the property adheres to safety standards.
This includes annual gas and fire alarm safety checks, five-yearly electrical inspections, and ensuring that fire safety measures, such as smoke alarms, fire doors and emergency lighting, are fully operational. Neglecting these responsibilities can lead to enforcement actions and jeopardise tenant safety.
Not only this however, preserving the building itself is a key role and this includes things like keeping an eye out for things like leaks, flooring that needs replacing and garden maintenance.
I normally recommend that landlords carry out maintenance visits every three months, but depending on the property it might be necessary to carry out visits more often. Remember to document visits and keep a record of actions taken.
3. Not vetting tenants properly and having the wrong mix
This point is a big deal and something that I see being done wrong so often. Particularly the point about having the right mixture of tenants in a property, which is often not even thought about.
For example, mixing students with working professionals may lead to differing expectations and potential disputes. A harmonious tenant mix contributes to a stable and peaceful living environment, reducing turnover and associated costs.
Failing to do this right might, in the short-term help fill voids quicker, but in the long run it can lead to rent arrears, property damage, and conflicts among tenants.
4. Ignoring health and safety regulations
Non-compliance with health and safety standards can have significant, negative consequences. There’s a lot to cover here and I think I will write an article on this point specifically in the coming weeks.
The main point is not just being aware of local health and safety regulations, it’s also being sure to follow them (and document that you have followed them). If you are a Medway HMO landlord, the requirements of the local council haven’t been published on their website for some time, but I have a copy of the previous document and would be happy to email it to you if you contact me at hasan@home-share.co.uk.
5. Poor financial planning
This is a huge point and one where there’s a lot to consider, however it’s absolutely crucial to understand that operating an HMO is running a business and as such, having a firm grasp of your finances is a non-negotiable point.
It shocks me how many investors still think that property is a get rich quick scheme but completely underestimate the initial capital required and then have no thoughts of ongoing costs such as maintenance, utilities, insurance, and licensing fees.
My recommendation here is to maintain at least a monthly profit and loss account alongside a cashflow statement, breaking down costs. The NRLA has a handy template that might be a good place to start and you can download a copy here.
6. Poor communication with tenants
Effective communication with tenants is absolutely key to operating a profitable, successful HMO.
Establishing clear channels for tenants to report issues and providing prompt responses not only leads to happier tenants, but it can also help prevent voids and rent arrears.
In addition to tenants reporting maintenance issues, regular updates about property matters, transparent policies and addressing concerns swiftly is crucial.
For example, if you have the plumber coming next week to fix the shower tray or a gas inspection, be sure to let the tenants know!
You’ll see here how there’s a lot to consider and this is why leveraging a specialist, who has experience in operating HMOs is crucial. Whether this means doing a joint venture with an experienced investor or leveraging the support of a specialist agent.
I founded Home-Share exactly for this purpose; to provide an effective, valuable tool for HMO investors and if you would like any advice then I’d be happy to help. Just drop me an email on hasan@home-share.co.uk.
Happy investing!
Hasan
