In the past it was arguably easier to turn a profit being a landlord, provided of course you knew what you were doing, bought in the right areas and did right by your tenants.
However, the government has directed a number of tax changes within the buy-to-let sector in recent years, meaning landlords’ expenses have increased considerably.
Any experienced broker will know, a popular route to higher income and profit is to invest in a house of multiple occupation (HMO) or to covert an existing property into one.
Typically speaking, you can achieve higher yields with a HMO, while voids are considerably less likely. They are also a popular with workers in major cities as the cost of renting a room in an HMO is often much lower than renting a one-bed flat, for example.
The most up-to-date figures show there were 497,000 HMOs in England and Wales at the end of March 2018, which highlights how in demand these property types really are becoming.
HMO licensing and planning laws could trip up less experienced landlords
However, while HMOs may be popular, investing in one is less straightforward than a standard buy-to-let.
In recent years, many councils have introduced new licensing and planning laws for HMOs and less experienced landlords are often unaware of these changes and the implications they could bring.
For example, Birmingham City Council introduced a city-wide Article 4 Direction in June 2020. This means anyone buying a small HMO or converting a property into one must apply not only for an HMO licence but also for separate planning permission where three or more unrelated people live within the property. Other councils, such as the Royal Borough of Kensington and Chelsea and Enfield Council, have done the same with many others also bringing in these regulation changes.
I have seen a number of cases where a landlord has converted a property into an HMO without getting the appropriate planning permission or advising their lender.
In effect, what they have done is illegal and it can cause a world of problems in refinancing their property, and might even land the landlord with a significant fine from the council.
Of course, they can apply for the appropriate planning permission retrospectively, but there is no guarantee this will be approved. Without the necessary planning it would mean their property could only be used for a single family and not as an HMO.
Ask landlord clients about appropriate planning permission
Clearly, it is not a broker’s responsibility to check that their landlord has applied for the appropriate planning permission, but is this a question you ask your client? And if not, why?
However, if your clients do inform you that they intend to convert a property into a small HMO, it would be worthwhile flagging this as a potential issue and the consequences.
If you do, then it will save both you and your clients a vast amount of frustration, time, and money further down the line.
Providing that sort of added value will only positively increase your relationship with landlord clients and offer a level of support that other brokers struggle to provide.
