Did you know that HMO’s tend to attract the highest rental yields in property letting?
HMO’s are the most popular with buy to let landlord portfolios, so getting to know all the cost of a property investment deal and more specifically the rental operating cost of an HMO is important. Information gathered below will help you get a better understanding on the important factors of a HMO.
You could encounter a few maintenance cost annually to cover any replacements/repairs, from a burst pipe, a blocked toilet to a replacement sofa or a new cooker. On average, 2%-5% of the annual rental income is used to cover HMO maintenance, so it would be a sensible idea to put away some money for repairs. In respect of the latter, you will be able to claim replacement items in your annual tax return, but you’ll still have to pay for them upfront.
You as the HMO landlord would need to pay the water, light and heating charges. This would be taken into consideration when setting a rental rate, but you will have to pay the bill every month or quarterly when it is due to be paid.
Another bill you as the landlord must pay and can be overlooked at times is the council tax. Depending on the location of the property, this can be quite expensive. it would be good to get a council tax estimation while doing initial search for a property.
As part of one of your mortgage conditions you will be required to take out building insurance. This would come under Landlord building insurance, however you may want to consider other insurances such as liability insurance. This insurance would cover you against any claims for injuries, if any tenants or visitors are injured because of a property default.
Depending on the location of your property, the prices will vary on mandatory licensing you need to apply for. This varies between local authorities. In a HMO property with five or more tenants you could be looking at prices such as the following in Sheffield, it’s £750, Manchester £985 and in the London borough of Barking & Dagenham, it’s as much as £1300. If the HMO is smaller and you have three or more tenants, you could still be subject to selective licensing conditions. This type of licence tends to be less expensive (usually by around £200 but again, depending on the area)
As well as having a licence (if required), there are also certain certificates you must obtain to stay within the law. These are an Energy Performance Certificate (EPC) to show how energy efficient your HMO is, a Gas Safety Certificate and an Electrical (EICR) inspection. The EPC costs are around £60, but it lasts for a decade. A gas check must be done annually and costs £30. The EICR, which is only required for properties in England, costs around £150 and needs to be renewed every five years.
Fire safety provision
When it comes to fire safety the Councils are very strict, especially in larger HMO’s. You will be required to have working fire alarms on every floor, fire blankets, Fire extinguishers and other fire equipment. They will also want to you to fit fire safety doors and a sprinkler system. Carbon monoxide detectors should be fitted as standard.
If you are not looking to run your HMO yourself, you will have to source a management service to help make your HMO run as smoothly as possible and will fewer troubles. Here you would need to consider that a letting agent usually costs you around 10%-14% of your rental income.
How can Berks Finance help
If the above sounds a bit overwhelming, or you have no time to manage your HMOs, don’t worry because we are here for you! We have a team of experienced HMO landlords ready to help you with advice, tips and anything else you might need.