1 of 9

An Overview of HMOs by HMO Daddy

HMO daddy
14 Walsall Road, WEDNESBURY WS10 9jl
TEL 0121 526 2255 FAX 0121 526 2222
jim@HMODADDY.com
www.hmodaddy.com

in conjunction with

Berkshire Property Meet

www.berkshirepropertymeet.com

mrandmrsrai@googlemail.com

An Overview of HMOs by HMO Daddy

So you are considering becoming a HMO landlord? Here is a twenty minutes outline.
If you want to know more then get my book How to Become a Multimillionaire HMO
Landlord it has over 300 pages packed with information and attend my one day
course on How to Become a HMO Landlord. For detail of both see HMODADDY.com.
Anyway lets get started.
(1) Understand the Property Market.
Property investment is not difficult, I compare it to used car dealing except
the figures are larger, the strategy is different and it is much easier. Property
is less complicated than cars and the longer you keep property the more
valuable it becomes unlike cars which usually depreciate. On average
property doubles every ten years but it has its ups and downs so to be on the
cautious side expect to invest for at least twenty years before property next
doubles in price. In the meantime you have to live and cash flow is essential
especially if property prices are going nowhere and interest rates continue to
rise, as you need to cover your costs.
HMO DADDY believes that HMOs outperform the property market and has
come up with the following unproven statistics acquired from observation of
the HMO market. Take a building, for example a large house and turn it into
a HMO with a minimum of five units, the HMO being developed over the years
to maximise its full potential as a HMO then the following HMO DADDY rules
apply:
RULE OF THREE is that a HMO grosses about three times the income of the

same property let as a single unit.

RULE OF TWENTY is that after twenty years the original purchase price of the

property which is then converted into a HMO will equal or thereabouts the
gross rent. For example a house purchased in 1987 for 30k will produce a
rent of about 30k per annum today as a HMO.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

2 of 9

An Overview of HMOs by HMO Daddy

RULE OF FORTY TEN is that after forty years a house purchased and turned

into a HMO then the gross rent per annum will be about ten times the
purchase price. For example a house purchased in 1967 for 4,000 will
produce a rent today of about 40,000 per annum as a HMO.
Note that you need to spend a considerable amount of money over the years
improving and keeping your property up to standard to achieve these returns.
(2) Your Motivation.
Be clear about why you are investing in property and remember why when
things get tough, as they will. Most people want financial independence. How
much money will give you financial independence? It is generally accepted
that a million pounds would not be too far off the mark. So how do you get a
million quid? Borrow the money to buy a million pounds of property today
and applying (1) above wait for about ten years for it to double. However, in
the meantime you need to pay the mortgage interest and other costs. As
HMOs give a substantially greater income compared to single lets you should
easily be able to pay the mortgage, costs and perhaps get a bit of profit as
well, all of which is becoming extremely difficult with single lets.
(3) What is a HMO?
Instead of letting by the house or flat rent by the room, the more rooms the
better. Tip: change the lounge and dinning room into bedrooms. There is no
law that says you must have a lounge and dinning room, and, unless your
tenant group demand it, I would use the lounge and dinning room as
bedrooms to increase income. A bedroom needs natural light, an opening
window and a minimum of 70 sq ft. Often extra units can be created by
building partitions and it does not cost a lot to do. NB Planners may want to
see a communal area.
(4) How do I know there is demand for HMOs?
If there is a demand for houses and flats in the area then there will with
almost certainty be demand for HMOs.
(5) How much to charge
For a reasonable size HMO i.e. five or more letting rooms, the total rent for all
the rooms usually comes to about three times what you could charge for the
whole house or flat. The amount of rent to charge for each room depends on
the size and standard of the room. New properties attract a premium. For
example, if you have a nice double room with ensuite charge 90 and for a
small room charge 50 or 60. In London you can charge more and in the
areas of low demand maybe less. Rent level is often down to suck it and see
and is not as rigid as single buy to lets especially if you are flexible on terms
e.g. allow short stay and immediate occupation but I would always require
proof of identity and a wage slip.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

3 of 9

An Overview of HMOs by HMO Daddy

(6) What kind of tenants

Generally it is the same as the demand for single lets in your area. The
market for HMOs is:
(i) Company lets
(ii) Professionals
(iii) Workers
(iv) Students
(v) Contract e.g. asylum seekers and social housing
(vi) Unemployed also known as DSS, DHSS, DWP and H.B
Each type of tenant has its own problems and advantages except the young
unemployed (DSS) which have very little going for them. I do not wish to
appear unfeeling about DSS tenants but from bitter experience I find they
cause serious problems.
(7) How to get tenants
In cities use the web it is free and used by students, professionals and
companies. Elsewhere and for workers and unemployed I find the local
newspaper works very well and cards in shop windows are the most cost
effective.
(8) Do I have to register with the Local Authority?
No! Unless you have a three or more storey building, see later. In the HMO
business you want to keep as far away from officialdom as possible as they do
little for you and more often than not make things difficult for you and
increase your costs. I know some of the officials can be helpful, friendly and
mean well, but on balance I would keep well away.
There is no requirement to tell or register with your Local Authority except
where you have a Mandatory Licensable property which is a three or more
storey building let to five or more tenants sharing a kitchen or bathroom. All
three requirements must apply so a two storey building irrespective of the
number of tenants does not need a licence. The exception to this is where
your local authority has introduced Additional or Selective Licensing which
only two or three have so far but I expect more will.
So unless Additional or Selective Licensing applies you can have a two storey
building with 10 tenants or more and no licence is needed nor do you have to
inform your Local Authority. With 3 storey licensable properties you have to
apply for a licence and pay a fee within three months of starting to let to
five or more persons, note you are unable to licence the property while it is
occupied by only four people. The local authority will then, when they get
around to it, tell you what conditions and improvements they want to
impose, see 9 below, and they have to give you a reasonable time to do it.
You can also appeal against the imposition of unreasonable conditions or time
limits to the Residential Property Tribunal. Delay means not doing it!
http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

An Overview of HMOs by HMO Daddy

4 of 9

Exceptionally, where the property is very dangerous the Local Authority can
get the Fire Service to close the property until remedial works have been done
or with unfit properties which the owner refuses to repair, take over the
management of the property and use the rent to do the repairs and pay for
managing the property. It is very unlikely that a Local Authority will take over
the management of a property.
(9) What do I have to do to the house?
The important thing is to satisfy your tenants demands i.e. give them what
they want. I find most tenants require a lock on their bedroom door, a fully
furnished house, including a washing machine in the kitchen, 24/7 central
heating and a TV. Professionals also require broadband. I would always
provide smoke detectors as well though I accept they are of limited use and
abused by the tenants but you are seen to do the right thing.
For fire protection you are better off fitting fire sprinklers as they do the job,
are rarely abused and cost far less than the fire protection that the Local
Authorities will often try and make you fit known as passive fire protection.
There has never been a death through fire in a fully sprinklered property. For
more on fire safety read my article How Landlords Can Save Lives and Save
Money on www.HMODaddy.com. Unfortunately, the situation at present is
that you cannot fit fire sprinklers instead of passive fire protection but you
may get a slight reduction in what the Local Authority normally require but
you will usually have to fight for any relaxation.
What more you provide is down to you and what your tenants and the local
authority when they find you require you to do. Local Authorities usually
require the following fire safety precautions but the legality for requiring them
is dubious:
(i)

A fire alarm system, best to fit a grade A system. A Grade A system is

the highest specification for a fire alarm and has a control panel usually
by the door and they dont cost that much more than the more usual D
Grade system (smoke detectors all wired together and sound together) if
you shop around. Budget 1.5k.
(ii) Emergency lighting in the escape route. Budget 100 each
(iii) An escape route from every room, except a bathroom protected by fire
doors with overhead closers, intermescent strips with smoke seals and
thumb turn locks on the bedroom and exit doors. Budget 200 to 600
each, the wide variation in cost is down to how much additional work is
needed to fit the fire doors.
(iv) Fire blanket in the kitchen and sometimes a fire extinguisher. Budget
30 - 90.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

An Overview of HMOs by HMO Daddy

5 of 9

Nb local authorities and even individual officers vary in what they want and
some just make it up as they go and there is little consistency. Like
everything in this business try and negotiate.
The budget figures are an estimate using reasonable cost contractors. If you
do it yourself most of your materials cost very little so you can save a lot.
The counter argument is that the time spent on doing it yourself could be
better spent working on developing your business, getting funding and finding
more properties and leaving the management and renovation to others.
A nice philosophy, but I find developing the business does not take that much
time it is comparatively easy to find and buy property and valuers and
lenders may be very slow and awkward to deal with but finding people to
manage and renovate my properties is much more difficult. When I renovate
a property I always install the highest fire safety features and provide for the
best amenity standards because it costs so little to do at that stage. If I was
not renovating then I would wait and see what will be required, the standards
are changing and the indications are that they are going to become less.
Most of the management standards which apply to all HMOs, whether
licensable or not are found in Statutory Instruments (SI) 2006 Number 372
and for licensable HMOs the amenity standards e.g. adequate bathroom
facilities, sinks in every unit of accommodation are found in SI 2006 No 373
Schedule 3 amended by SI 2007 No 1903. SIs can be downloaded free of
charge from the government web site www.opsi.gov.uk. There are no
amenity standards specified for non licensable HMOs.
Many Local Authorities are ignoring non licensable HMOs i.e. those with less
than three stories. Where they do become involved with non licensable HMOs
the standards the Local Authority can demand for non licensable HMOs are
based on the controversial and very subjective Housing Health and Rating
System (HHRS). In practice, I expect most Local Authorities, where they take
action against non licensable HMOs, will demand similar amenity standards to
licensable HMOs.
Under the Regulatory Reform Order 2005 you are also required to carry out a
fire risk assessment on a HMO but no one as yet seems to be bothering. The
problem with ignoring the legislation is that if there ever was a death by fire,
which is statistically very unlikely, the Coroner will want to see the risk
assessment and want to know what precautions were taken.
Many Local Authorities also provide a guide to what standards they want on
their web site, if yours dont then look at other local authority web sites or
www.homestamp.com which produces a very clear guide to fire precaution
standards but remember they have no legal standing. Fire standards are
supposed to be based on risk assessment. I do not get too excited about
these standards as most of what is required provides little benefit and so is a
http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

An Overview of HMOs by HMO Daddy

6 of 9

waste of money or even harmful see my article What is The Use of all This
Legislation soon to appear on www.HMODADDY.COM. You just learn to put
up with it or try and avoid it.
I wish to make it clear I am not advocating unsafe or unfit HMOs. I think it
goes without saying any professional landlords will always ensure their
properties are safe, clean and of a good standard otherwise they will not keep
or attract tenants or remain in business.
(10) What does it cost to operate a HMO?
Having considered all the options I find it easier to make the rent inclusive of
all bills i.e. council tax, water rates, TV licence, gas and electricity. If you
provide 24/7 central heating, which I would recommend you do, ban electric
heaters from the property as an electric heater will cost a fortune to run.
When letting to professionals I would provide broadband. On average it costs
me 3,200 per annum per property for the bills and that is providing 24/7
central heating. I find trying to cut central heating costs only saves 200 400 per annum and gives rise to great tenant dissatisfaction. To furnish a
room costs about 200 if you shop around and find quality budget furnishings.
The cost of rent collecting, viewings, cleaning, repairs and maintenance is
more difficult to assess. I find from operating the 70 HMOs that I own, it
costs on average 3,600 per annum per property to employ others to do all
the work. If you do it yourself, it will cost very little, again its what is the
best use of your time. Strangely, I find it costs about the same to operate a
four unit HMO as it does an eight unit HMO.
(11) How much time does it take to operate a HMO?
I think it took me on average less than ten hours a week to run ten HMOs by
myself, doing most of the day to day work myself e.g. interviewing tenants,
rent collecting, problem solving, buying and moving furniture, employing
occasional cleaners and decorators, while in full time employment running
another business and doing part time work as well. I operated up to 34
properties 25 of which were HMOs again while in full time employment with
the assistance of a full time handyman and a part time manager. This also
included buying the properties and organising the renovation work.
To start a HMO is a different matter, this will depend what work is needed and
it will always take you longer than you expect.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

An Overview of HMOs by HMO Daddy

7 of 9

(12) Where should I buy?

To be sure of good demand go for the same areas as for single lets to single
people e.g. near town centers and transport routes. However, I have found
demand in some out of the way places, again suck it and see. Neighbours are
of crucial importance. Most owner occupiers do not like you letting the property
next door to them as a HMO and I can sympathise with them, they will
complain to the local authority which will cause you problems so keep away
from owner occupiers.
(13) What should I buy?
I find it is rarely cost effective to try and have a HMO with less then four
lettable rooms. The condition of the property does not matter if you are going
to renovate. It costs about the same to fully renovate a property in reasonable
condition as it does a derelict property e.g. rewire, replumb, new kitchen,
bathroom and windows, fit fire doors etc. The ideal property is cheap and
provides a large number of units.
Often properties that are unsuitable for owner occupation e.g. no garden or
parking, ugly, or otherwise unattractive to owner occupiers, can prove ideal for
a HMO as they are cheaper and my tenants are not that put off by these things.
Houses next to factories, railway and power lines, ex pubs, office blocks, flats
above and behind shops are ideal.
(14) Do I need planning permission?
Under planning law a residential property can have up to six living as a single
household (C3 use). Above that number the property may need planning
permission depending on size and impact on the local area. The problem is
that different local authorities have varying interpretations as to the meaning of
the word household or enthusiasm for enforcement. Most will accept up to six
persons living in a property providing they share at least a kitchen or bathroom
or if they dont they can rarely do much about such a property. Again you are
at the discretion of the Local Authority so it is often better not to ask and keep
well away from them. After ten years or four years if they are self contained
e.g. flats, use becomes established and the Local Authorities are unable to take
enforcement, i.e. stop the property being used as a HMO.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

An Overview of HMOs by HMO Daddy

8 of 9

(15) Easy way to start

The easiest way to buy a house is to have an ordinary buy to own mortgage,
some lenders give 100% mortgages, and start to take lodgers. There is also a
5.5k pa tax allowance for lodgers.
Generally, owner occupier mortgages are easier to get and you do not have to
show rental income or with a Self Cert mortgage any personal income.
Choose, where possible, your lender carefully as some are open to converting a
Buy to Own mortgage to a Buy to Let mortgage with no or minimal fees.
Thus there is nothing to stop you moving on and buying another house and
doing the same all over again. And they say that first time buyers cannot get
on the housing ladder!
Beware of getting an ordinary buy to let mortgage and then renting the
property as a HMO as this may be considered fraud if you had no intention of
letting the property as a single let when you applied for the mortgage.

(16) The Tenant

The last but most important part of your HMO business is your tenants No
tenant no business. Treat your tenants well and with respect but do not expect
the same in return and you will not be disappointed! Attend to complaints and
repairs quickly aim for 48 hour service, so as not to give your tenant an excuse
for withholding the rent. The key to success is being efficient and providing
good service. Log all complaints and photograph with a date stamp camera as
necessary for evidence. Follow up arrears immediately this is of crucial
importance. Do not allow non payment. Install a No pay no stay attitude in
your tenants. From bitter experience almost all excuses for non payment are
lies.
Help your tenant if they lose their job to claim Housing Benefit (HB) so you
need to know how the HB system works. There is self interest here, if the
tenant does not get HB you rarely get paid. Remember most newly
unemployed are entitled to the full rent for the first 13 weeks but you have to
ask and again fight the system.

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07

9 of 9

An Overview of HMOs by HMO Daddy

JUST DO IT AND BEST OF LUCK!

Jim Haliburton is a private landlord owning over a hundred properties, mainly HMOs. He has written a
book called How to Become a Multi Millionaire HMO Landlord and runs courses on becoming an HMO
landlord.
Jim Haliburton will be running a HMO Daddy One Workshop in conjunction with Berkshire Property Meet
in Maidenhead 3rd February 2008 for further details and to register please go to:-

http://www.berkshirepropertymeet.com/hmo.htm

NOTES

http://www.berkshirepropertymeet.com/hmo.htm

C. J. Haliburton 02.11.07