Whether you’re an accidental landlord, or you’re becoming a landlord for the first time to take on an exciting investment opportunity, you must focus on generating healthy profits from renting to tenants. A clear advantage of being an HMO buy-to-let landlord is that HMO properties can produce considerably higher rental yields than traditional buy-to-lets.
In Northern Ireland and across the UK, many people try and fail at becoming first-time HMO landlords every year. So, what do you need to take into account to ensure you learn quickly and hit the ground running to turn yourself into a successful HMO landlord?
To help you with this, here are 7 considerations for first-time HMO buy-to-let landlords.
The legal definition of an HMO property
In Northern Ireland, a house in multiple occupation (HMO) is a property rented out by at least three people forming at least three separate households or families that share facilities, such as the bathroom and kitchen. HMOs are commonly referred to as ‘house share’.
In Northern Ireland, landlords must have a valid licence for each HMO property they own and also pay a £37 fee per person living in the property per year. HMO licences last five years.
Here, HMO licences come with conditions that must be met by landlords, these include
- Ensuring the management of the physical property
- Being respectful of occupying tenants’ rights
- Addressing any antisocial behaviour and neighbourhood concerns about your tenants
Rules around HMOs however vary in different parts of the UK. In England and Wales, for instance, an HMO is a property rented to five or more people who form more than one household.
How to apply for an HMO license
You can’t collect rent for an HMO property from tenants in Northern Ireland without first having your HMO licence application granted. As a first-time HMO landlord, you will need to educate yourself on how to apply for an HMO license. You can register and apply for a NI HMO licence on the NI Houses in Multiple Occupation website.
Within seven days of submitting your HMO license application, you are obliged to publish information about the application in one or more newspapers circulating in the local area of the HMO, as well as provide a copy to the local NI Houses of Multiple Occupation Unit.
What to put in the tenancy agreement
A tenancy agreement is a contract between the landlord and HMO rental tenants. It allows your tenants to live in a property as long as they keep up with paying rent and follow certain stipulated rules and conditions.
The legally binding written tenancy agreement you provide your tenants with should lay out the legal terms and conditions of their tenancy. So, make sure specific rules on things like pets, property repairs and damages and how the place should be maintained, and who is responsible for paying utility bills are clear in the agreement tenants sign.
A tenant breaching their tenancy agreement in any way while living in your HMO could provide you with fair grounds for eviction, provided you give them an adequate notice period.
How much rent you should charge tenants
The rent you charge your HMO rental tenants should be a percentage of your property’s market value. However, carrying out market research on local rent prices is key to calculating how much you should charge tenants for rent. The figure you charge will also depend on the condition the property is in, local amenities, and transport links.
Of course, how much rent each occupant pays in an HMO will also depend on the number of bedrooms there are in the property. Tenants living in HMOs with a higher number of bedrooms often pay lower rental fees. More affordable rent is certainly one reason people may decide to rent a room in an HMO property as opposed to a one-bed studio flat for instance.
How you can increase your rental yield
Trying to respect and help out your HMO rental tenants wherever possible is important. You don’t want to come across as greedy.
Nevertheless, being an HMO landlord is a business venture and you need to consider straightforward ways you can increase your rental yield. Here are some things you can do to raise your HMO property’s overall rent yield and justify increases in tenants’ rent:
- Adding an extra bathroom
- Redecorating the place, e.g. sprucing up flooring, wallpaper, paintwork, plasterboard, and more
- Maximising storage space with built-in wardrobes and neat shelving units
- Being flexible by allowing tenants to live with pets will make you stand out as a much more attractive rental option to pet lovers
- Reducing your landlord outgoings. For example, by getting competitively priced comprehensive landlord insurance packages from a reliable expert broker, such as CIA Landlord Insurance.
What’s your investment plan?
You need to think about whether becoming an HMO landlord is a short or long-term plan. Do you intend on renting the property out to tenants for a few years, doing it up, then ‘flipping’ and selling it at a profit? Or, is it a long-term investment that you want to be able to generate a healthy amount from every month for you and your family for decades into the future?
Honestly assessing your investment goals is a crucial part of the early days of setting up as an HMO landlord.
Do you want to pass the property on to your children?
A further important consideration is if you’d like to pass your HMO property on to your children one day. They wouldn’t have to rent it out to tenants, they could instead decide to use it as their own family home.
Do you want to appeal to the student market?
Knowing the sorts of tenants you want to attract will affect the details of how you want your HMO property to look. Do you want to appeal to the student market? In that case, try to look into buying an HMO property located in popular ‘student’ areas as well as furnishing all the bedrooms with study desks.
Belfast is of course home to the world-famous prestigious Russell Group university, Queen Mary’s Belfast. In 2020-2021, there were 66,245 students enrolled at universities and higher educational institutions in Northern Ireland. So, there should be no shortage of demand if you are an HMO landlord looking to fill your property with student tenants!
Student tenants can be a reliable source of income for first-time HMO property landlords, and they really aren’t as bad tenants as all the stereotypes often claim.
Being an HMO buy-to-let landlord is a big responsibility, and it can be a little daunting if it’s all new to you. Hopefully, after reading these 7 considerations, you should now be more aware of what awaits you and what to expect as a first-time HMO landlord.
Being a landlord with a rental property that has many tenants can most certainly be a nice little bit of extra income for you every month, provided you go about it the right way.
