HMO Refurbs

Welcome to the latest edition of The Business Owners' Property News - my weekly newsletter dedicated to helping business owners and busy professional get started in property investing.

Today we are going to look at the process of converting a house to a HMO.

Renovating an HMO (House in Multiple Occupation) can be a lucrative investment if done right.

Here’s a comprehensive guide to help you navigate the refurbishment process.

Research and Planning

Regulations

Understand the local regulations regarding HMO properties, including planning requirements, licensing requirements and safety standards for your area. Your starting point is your Council website - search for HMO and "Article 4".

If there is an Article 4 directive for some or part of your area, then permitted development rights (PD rights) have been removed in your area and you cannot convert a normal house (planning class C3) to a C4 HMO (ie for up to 6 people), under PD.

Remember 7 people or more will always need Sui Genesis planning permission.

If there is an Article 4 direction for HMOs in your area, then it is going to be difficult to create a HMO as the council probably don't want any more - especially if they take out a family home from the housing supply.

THIS NEEDS TO BE YOUR STEP 1! DON'T CONFUSE PLANNING WITH LICENSING. PLANNING IS STEP ONE!! MAKE SURE YOU CAN DO WHAT YOU INTEND TO FROM A PLANNING PROSPECTIVE

If there is no Article 4 direction, download the council's HMO Amenities standards. They will be based on national standards but some room size and facility requirements will differ by council.

This is your HMO bible for the specification you need to create to satisfy licensing conditions in your area.

Market Analysis

Research the local rental market to identify demand for HMO properties and rental rates. Look at the "Spareroom" website. Search for your postcode. You will see the number of properties available in your area, what the standard is and what the room rate is.

You will also be able to see how many people are searching for rooms versus the supply. Also speak to lettings agents - both in person and online. Many local HMO agents have a profile on social media and they will advise on demand, standards and room rents.

Property Selection

Location

Choose a property in an area with high rental demand and good amenities, such as proximity to public transport, universities, hospitals and large employers.

Tenants want to be near shops and high street facilities. Often, they won't have a car so need to get their essentials easily and not be out in the sticks.

Size and Layout

Look for properties with multiple bedrooms and adequate communal spaces to maximise rental income. Remember to refer to YOUR Council's guidelines. Larger rooms may not need a communal space, but your tenants may prefer it.

The size of the kitchen and communal space and the facilities within will change depending on number of intended occupants so make sure you know your space and amenities standards.

TOP TIP: FOR HMO STANDARDS AND REQUIREMENT, ALWAYS REFER NUMBER OF PEOPLE AND NOT NUMBER OF BEDROOMS - 3 OR MORE UNRELATED PEOPLE SHARING FACILITIES CREATES A HMO.

A COUPLE AND THEIR FRIEND, RENTING A 2 BED PROPERTY CREATE A HMO!

Condition

Assess the structural integrity and condition of the property to determine the extent of renovations needed. If you're purchasing a property with finance, then the lender will carry out a survey (at your expense). You may want to opt for a more detailed survey to assess the condition of the property

Budgeting

Determine your budget for the refurbishment, including both the purchase price and renovation costs. The numbers have to stack and good quality refurbs are not cheap - especially when you start extending to create the amenity space and adding all en-suites (which attract the highest rents).

Ensure you have a robust DEAL ANALYSER to work out your return on your HMO project.

TOP TIP: Consider purchasing a property that has already been extended and maybe has one ensuite in addition to a bathroom. It's worth spending the money before as you will save on time and possible planning application time.

Design and Layout

Maximize Bedrooms

Aim to maximise the number of bedrooms within the property while maintaining adequate communal spaces. An experienced Architect or Architectural Designer is key here to get the most of your space, compliantly.

There is a school of thought to make bedrooms bigger at the cost of communal space - as you can't charge for a communal space! But your tenants may think differently if they want a more sociable house.

En-suite Facilities

Consider adding en-suite bathrooms to bedrooms to increase rental value and demand. Professional tenants will see en-suites as an essential feature and will result in the best rates for your room, quality of tenant and lower churn rate on the rooms, lowering voids.

Open Plan Living

Create open-plan communal areas to maximize space and create a modern living environment. See above for bedroom space v communal space.

TOP TIP: SOME LENDERS WILL NOT LEND IF THERE IS NO COMMUNAL SPACE, SO THIS MAY REDUCE THE POOL OF LENDERS AVAILABLE ON REFINANCE OF YOUR PROJECT.

Fire Safety

Ensure compliance with fire safety regulations, including the installation of fire doors, smoke and heat alarms and escape routes.

A great idea is to get a Fire Risk Assessment (FRA) done at the start of your project to build fire safety into your refurb.

TOP TIP: MORTGAGE LENDERS WILL WANT TO SEE THE FRA ON REFINANCING YOUR PROPERTY, SO GET IT DONE NOW

Renovation Process

Building regulations

The first step is to get building regulation drawings from your Architect and to employ the services of building control - whether private or council.

The building regulations drawings will enable your builder to create an accurate quote based on the spec required to be compliant. Building regulations are changing as are the roles and responsibilities of yourself and your builder.

GET THE PROFESSIONALS INVOLVED FOR THE CORRECT ADVICE!

Electrical and Plumbing

You will almost certainly need to update electrical wiring and plumbing systems to meet safety standards and accommodate the needs of multiple tenants.

A combi boiler is not going to work for multiple housemates! You are going to need a system boiler and cylinder to store hot water to ensure all tenants are supplied with hot water at the same time!

Extra electrical work is required for interconnected smoke alarms, emergency lighting, heat alarms and extra sockets and switches for bedrooms. Fans for en-suites will be required.

It's essential to get a plan done for your electrician and plumber so they know what's required and where in the property.

Insulation and Soundproofing

Improve insulation and soundproofing between rooms to enhance comfort and privacy for tenants. Spending money on insulation during the refurb will improve the EPC score of your building - AND KEEP HEATING COSTS DOWN!

This is essential if your HMO business model is based on "all bills included"!

High Speed Broadband

This is essential for a HMO - get your provider booked in early as the process can take some time!

Keys

Choose your key system - one that doesn't allow your tenant to lock themselves out of their room - you don't want to let them back in every week!

Will you have a master key system or a key code system? There is a wide range of availability of systems, choose what suits best.

Choosing your Builder

One of the most important parts of the process - choose the right builders that have HMO experience and expertise - with the readily available references.

Research and Shortlisting

• Ask for Recommendations: Seek recommendations from local property investors, or landlord associations who have experience with HMO refurbishments.
• Online Reviews: Check online review platforms and forums for feedback on builders in your area.
• Portfolio Review: Look for builders with experience in HMO refurbishments and projects similar to yours.

Verify Credentials

• Insurance: Ensure that the builder is properly licensed and insured to carry out construction work in your area. Request to see their insurance certificates.
• References: Ask the builder for references from previous clients and follow up with them to inquire about their experience working with the builder.

Conduct Interviews

• Initial Meeting: Arrange meetings with the shortlisted builders to discuss your project requirements, timeline, and budget.
• Ask Questions: Inquire about the builder's experience with HMO refurbishments, their approach to project management, and their availability to start and complete the project.
• Clarify Expectations: Clearly communicate your expectations for the project, including quality standards, materials to be used, and any specific design preferences.

Obtain Detailed Quotes

• Request Quotes: Ask each builder to provide a detailed quote outlining the cost of materials, labour, and any additional expenses.
• Compare Quotes: Review and compare the quotes from different builders to ensure they cover all aspects of the project and are within your budget.

Check for Red Flags

• Communication: Pay attention to how responsive and communicative the builder is during the quoting process. Lack of communication could be a red flag for potential issues during the project.
• Transparency: Choose a builder who is transparent about their pricing, processes, and timeline.
• Contract Terms: Review the contract terms carefully to ensure they are fair and protect your interests as the client.

Visit Previous Projects

• Site Visits: If possible, visit previous projects completed by the builder to assess the quality of their workmanship and attention to detail.
• Talk to Clients: Speak with the owners of previous projects to gather feedback on their experience working with the builder and the quality of the finished product.

Trust Your Instincts

• Gut Feeling: Trust your instincts when choosing a builder. If something doesn't feel right or if you have doubts about a builder's suitability for your project, it's better to explore other options.

Finalise Contract and Start Date

• Contract Signing: Once you've selected a builder, finalise the contract detailing the scope of work, payment schedule, and timeline for the project.
• Start Date: Agree on a start date for the refurbishment project and ensure that both parties are clear about expectations and timelines.

TOP TIP: DO NOT HAND OVER LARGE CHUNKS OF MONEY AT THE START OF THE PROJECT. AGREE PAYMENT STAGES THAT BOTH PARTIES ARE COMFORTABLE WITH AND BE EQUALLY FAIR WITH YOUR BUILDER - THIS IS A TWO WAY STREET!

Completion Matters

Once you're building is done, make sure you have all your compliance paperwork - building control sign off, electrical certificates, gas certificates, emergency lighting certificates, building regulation certificates for boilers, windows, doors etc

YOU WILL NEED THIS FOR LICENSING, TENANTING, MORTAGING AND SELLING YOUR PROPERTY!

So there you have it - a list of some considerations when carrying out a HMO refurbishment. It's not straight forward, there are lots of regulations.

Need some hand holding on your first project? Get in touch to see how we can help on 0121 647 7090 or info@brahmaproperty.co.uk