The 4 Things to Look for in a Rent to Rent HMO – Part 1

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Hello and welcome to the 29th episode of The Rent 2 Rent Success Podcast. 

I’m so excited about episode 30 next week as we have got an amazing episode for you.

It’s an interview with a special guest.

The Nicky Taylor will be joining me next week and she’ll be talking all about her story - from YTS (Youth Training Schemes) to Corporate stress. 

I found out things even I didn’t know!

This week it’s all about how to choose the right property.

But before I dive in…

This week we’ve been talking to our production company about our book. It’s getting real. Rent 2 Rent Success The Book.It’s our 6 step Rent 2 Rent Success System in book format.

If you want to be part of the VIP book list,

We’re going to do a pre-launch just for our VIPs and everyone in our Programme.

So if you want to be part of it sign up here:

✅ https://rent2rentsuccess.com/book ✅

So let’s get into this week’s episode...

What makes a good HMO?

A lot of the time we talk about working with landlords and agents and what makes them want to choose us.

But we need to do some choosing too, and that’s why this episode is different because it’s all about choosing the properties which are right for HMOs.

The things you learn here will set you up for consistent cash flow. 

This is an area where many people come unstuck because they are confused about whether the property will be profitable. Or they’re so keen to get started they choose a bad property.

Here we talk about aspects of assessing a property.

This is different to the deal analysis. 

This is all about, 

Will this property work as a house share?

Will it be legal?

Will it rent out consistently to the right people?

There are 4 Ls to lookout for:

• Licencing

• Location

• Layout

• Lifestyle

And we’ll be talking about the first two, licencing and location today.

And then in a future episode we’ll take on the second two, layout and lifestyle.

 Licencing

Many people I talk to are intimidated by licencing.

They say they’d rather do serviced accommodation and essentially be running a hotel because it’s ‘easier’.

Serviced accommodation is more time consuming than HMO because by its very nature you’re finding and serving lots of new customers every month. 

And as you’d imagine guests have much more exacting requirements than housemates. 

Licencing looks complicated but once you understand the basics, it’s straightforward.

Remember that lots of people are doing it and most of them aren’t rocket scientists. 

You’ll be able to do it too.

And the fact that some people are put off by HMO licencing means there is more opportunity for you!

What is HMO Licencing?

HMO licencing are the rules which the government says must be in place for an HMO.  A house of multiple occupation.

Mandatory licencing rules in England and Wales 

Every HMO property for five or more people from more than one household requires an HMO licence. It used to only apply to properties with more than 2 storeys but now is the case for all HMOs irrespective of the number of storeys.

Properties for seven or more people from two or more households require suis generis HMO planning.

https://www.gov.uk/house-in-multiple-occupation-licence

Mandatory licencing rules in Scotland

Slightly different rules apply, and you will need a HMO licence if you want to rent your HMO property out to three or more tenants, none of whom are related or part of the same family.

https://www.mygov.scot/renting-your-property-out/registration/  

Local differences

Some Council's aka Local Authorities have added further requirements to the national requirements.

And you'll need to find out whether there are any additional restrictions in the areas that you're looking at.

The additional requirements can be in the form of:

• Article 4 Direction, 

• Additional, 

• Selective Licencing.

Let me explain what this means.

Article 4 Direction

This is a direction under article 4 of the General Permitted Development Order which enables the Secretary of State or local planning authorities to withdraw specified permitted property development rights. In plain English this means that where an Article 4 Direction is in place Planning is required to re-classify a C3 property (residential) to C4 (HMO).Planning has always been required for a sui generis (HMO for seven or more people).

Additional Licensing

This applies to certain HMOs that fall outside the scope of the mandatory HMO licensing scheme.  It’s a discretionary scheme that a council may have adopted to help it deal with the problems associated with HMOs that are not already covered by mandatory licensing.

Selective Licensing

Much like additional licencing the content will depend on exactly how the local authority has drafted their scheme, and some schemes cover the whole borough whereas others only cover smaller geographical areas.

How do I know whether there is Article 4 or Additional Licencing in my Area?

This is very simple. It’s public information available on the website of each local authority area.

My area is Article 4 What Should I do?!

So many people use article 4 as an excuse not to get started.

We have a successful rent to rent business in an Article 4 equivalent area and because we focus on existing HMOs, it doesn’t stop us.

If anything, it’s an advantage because there is less competition because it’s more difficult to convert a house to an HMO.

When you focus on existing HMOs everything is already done for you. You don’t need to pay for additional work to get it to HMO standard. 

You don’t have the uncertainty about whether Planning will be granted.

And yes, landlords and agents will rent existing HMOs to you on a rent to rent basis.

Sometimes it can be worth the time and expense of going through Planning, for example if you’re buying a property or if you have the property on a very long lease at a no-brainer rent.

Generally, though we do not recommend that as beginners you go for properties that aren’t HMOs in Article 4 areas. 

Although there are exceptions to every rule and Maria has done this successfully and you can hear her talking about it in the bonus Rockstar episode - Rent 2 Rent as a busy mum of 3 with rent 2 rent Rockstar Maria Opaniran.

That’s licencing sorted.

You just need to know the status of the property which you can find online.

We suggest you start with already licenced HMOs.

Next up...

Location

You need to choose a location where people who are your target housemates would want to live.

How to choose your area

If you feel very confused about where to start, I’ll give you some clarity here.

Before I go into this, I want to remind you that there are people doing rent to rent in cities all over the country. Rent to rent works in most cities. Of course, there are checks to make first. And that's what I'm going to talk to you about now to make sure that it's going to be a good area for you.

Start where you are

Choose an area you know well as your first area.

People overlook how much easier this will make the process.

Choosing an area you know well, close to your home, or work, will give you so much more clarity than trying to get your very first property far away in an area unknown to you.

It’s not impossible, it’s just much more difficult.

As you don’t need to buy the property, you can do this even if you live in an expensive area.

If you live in the countryside, look at the biggest towns or cities to you. Then you'll need to look at a few other things just to make sure that the location is really going to work well from an HMO perspective.

Check it has the 4 Ps...

Practical

It needs to be within easy reach for you because if you're doing the setup and getting the property together at the beginning, it’ll run much more smoothly when you can get to it easily. 

Later on you may choose to outsource, but at first it’s likely to be you so make sure it works for you. 

All of our properties are within 30 minutes of where we live, although we have now outsourced our property management to an in house Assistant Property Manager.

People hubs

Your property should also be near people hubs. 

People hubs are things like:

• Hospitals

• Large employers

• Universities

• Shops

• Cafes

• Restaurants
  

People hubs are the reasons people are coming to your city.

The more people hubs there are in your location, the more resilient it is as an investment area.

Public transport links or parking

In many areas most HMO housemates won’t drive.

In our area, we have a high percentage of housemates who drive, so on-street, uncontrolled parking is important.

It hovers around 50% of our housemates. Good transport links nearby are important. And it’s even more important if you’re in an area, where fewer of your housemates drive.

Property type in your area and investment in your area

You want to check that there are HMOs in the area.

You want to see signs of development and investment as well. If the area you’re focussing on doesn’t have many large properties and is mainly 2 bed houses or flats, it’s not going to work.

Once you know your location has the essential four Ps.

You’ll want to see whether the demand is there.

Demand

SpareRoom is currently far and away the number one website for letting shared houses in the UK.

It will show you the number of people looking for rooms, the number of rooms available, the rents and the conditions of the properties.

You’ll be able to see rooms from the lowest to the highest end of the market so you can assess where you want to position yourself.

Spareroom will give you an indication, remember not every room available will be listed, not every room listed will be available.

And not every potential housemate looking for a property will have created an account on spareroom.

You’ll be able to find out the ratio of people looking for rooms v rooms available.

Obviously, an area becomes more appealing when the number of people looking for rooms far exceeds the number of rooms available.

Our area works well yet the ratio of potential housemates looking for rooms available on Spareroom varies massively at different times of year so you need to consider other factors too.

Your local knowledge

This is an area where your knowledge of the area helps you massively. As you’ll have an idea whether your area is attracting lots of new people or not and the rentability of different locations listed on spareroom.

Local agents and investors

You can also speak to local letting agents and landlords. Although I caution you not to put too much weight on what they say if they’re not HMO specialists.

Lots of HMO investors contact us about investing in Newport and tell us that local high street letting agents in our area have advised them HMOs don’t work here!

All it means is that HMOs don’t work for some high street letting agents because it’s not their specialism and they prefer single lets.

Many people allow themselves to stay stuck in ‘confusion’ rather than choose an area. It can feel scary doing something new. Do the checks I’ve outlined above and then choose your area.

So, that’s Part 1 of the 4 things to look for in a rent to rent HMO.

Look out for our Part 2 in a few weeks.

These are 4 Ls to lookout for:

• Licencing

• Location

• Layout

• Lifestyle

Have you found this useful?

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Until next time, have an amazing rest of the week.

And remember,

Believe Bigger, Be Bolder and Be a Gamechanger!

See you soon!

Stephanie & Nicky

xx

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