For many developers, self-contained HMOs have become the new holy grail. Paradoxical as these may sound, they have become a hot ticket in the realm of affordable housing. Sounds familiar?
Landlords can double their profit by renting a property as Houses in Multiple Occupation (HMOs) as opposed to a traditional house, as seen in our other blog posts.
With the prospect of high returns, we are constantly striving to offer our property developers different areas of the market to invest in. We firmly believe that small HMOs can be maximally efficient and create a niche market that appeals to the renters that want less space for better prices.
We’ve looked at all of the policy guidance and think we’ve found that niche. The result?
We want to share it with you…
Before going into the nitty-gritty, we should go over the differences between an HMO (Use Class C4) and a self-contained flat (Use Class C3).
An HMO is a property that has been converted into a shared living space occupied by 3+ unrelated individuals. Each resident rents their respective bedroom, and they share the rest of the facilities, which includes a kitchen, dining room and living spaces. At the end of the day, HMOs must contain communal living areas that are shared by the occupants of the HMO units. At minimum, this communal area must contain a kitchen, but each council has its own set of requirements. Each local authority will also have a different set of requirements for the minimum size standards for the bedrooms and of the shared spaces. Make sure you hire a planning consultant at the beginning of your project to ensure it is possible.
A self-contained flat, by contrast, has the bedroom, kitchen, living, dining and washroom facilities within one defined space. According to the national standards, one-bedroom one person flats must be at least 37 square meters (or 39 square meters if it has a bath).
But first a warning: If it’s any smaller, it can’t be considered a self-contained flat. This is true for any typical house or flat.
Okay, so we know that HMO occupants get their own bedroom and must share the rest of the facilities. And we know that self-contained flats must have the bedroom, kitchen, living, dining and washroom facilities in one unit.
Therefore, by definition, an HMO room – where a resident sleeps – could not possibly satisfy the 37 square metre requirement. Nor could they have a kitchen in their room, as this must be separate. So how could an HMO be considered a self-contained unit?
The truth is the answer relies on a certain ambiguity.
In the end, this ambiguity can be used to increase the return on your investment. The following will describe in greater detail how this ambiguity might be taken advantage of.
We have seen the resurgence of high-quality accommodation, particularly in the form of student accommodation.
The same demand is currently being applied to HMOs as individuals want better accommodation for lower prices. While a truly self-contained HMO is not technically possible (as we’ve already seen), we have a few tricks to allow property developers to create high-quality rooms and increase overall rental yield.
The location of a property is crucial as each council has different policies which may negate the ability for a conversion into an HMO. Prospective tenants also want to live in a well-connected property. For instance, being a short distance from a tube station can increase your rental ability.
It’s imperative to contact your council early on in the process to make sure that there aren’t any policies in place that would make a self-contained HMO impossible.
Here’s the most important part…
HMOs need to have a specific layout to ensure that the overall policy guidelines are being satisfied. If we maintain the internal standards of shared living spaces then we can divide the building so each unit has its own set of amenities. The divvying up of a property is easier said than done and should be given to a professional to complete, so your property is maximised.
In order for an HMO to be marketed as both self-contained and an HMO, a certain sleight-of-hand must take place. Remember, a self-contained unit must have a kitchen. And an HMO must share the kitchen with the rest of the house. But if you construct an HMO room with a kitchenette that is offset by a pair of fire doors (or something similar), then you can technically say the room is separate from the kitchen. After the kitchenette is set apart in this way, developers can include an ensuite and a bed, at which point they can market the room as a self-contained HMO with an ensuite.
And what’s more, you can price it as you would a self-contained flat(!), despite it being smaller than the national standard of 37 square meters. Of course, how you go about designing your HMO will be subject to certain limitations and policy requirements, so be sure to consult a skilled architect who understands the nuances of such an endeavour.
It is a common misconception that, if you have the licence, you do not need planning permission and vice versa; however, this is incorrect.
Luckily, we’ve already written a blog post on this which you can read about here.
Basically, if your HMO satisfies certain criteria – for instance, if the building is three storeys or higher – then you’ll need to apply for an HMO license. These criteria are due to change on 1 October 2018. It’s important to keep up with these changes because fines can get up to £20,000 for failure to have a license.
Yes, it’s true, planning permission for HMO may not be required when converting a C3 dwelling – i.e. a flat or house where one lives – to a C4 unit – i.e. an HMO property with between 3 and 6 occupants. This is due to a nationwide policy known as permitted development rights. However, these rights may be revoked by any council through what are known as Article 4 directions. So be sure to check your council’s website before assuming you’re free to convert your house to an HMO property.
Even if you have permitted development rights in your council, it is advisable to obtain a Lawful Development Certificate (LDC). That way, if anyone comes knocking on your door, you have a proper document to prove that your property is indeed lawful. If you need help with securing planning permission or obtaining an LDC, you should seek out the assistance of a qualified architect – one who is knowledgeable in the area of planning policy.
If you’d like help maximising your rental income and creating high-quality HMOs, please get in touch. You can shoot us an email or give us a call at 0203 793 78 78.