HMO demand and the future?

As another HMO landlord I feel your pain and worries.
In another article on this site today one of the BTL lenders states that more Landlords are buying HMO properties for better yields and hoping to make a profit.
It is not easy to manage a HMO
If maybe very difficult to make a profit and deal with 5/6/7/8 tenants and all the issues involved.
The support you can expect from the local council, government policies and local housing "charities " such as Shelter and Generation Rent will all help with the stress.
Your now in it for the long run

HMOs are a bad thing for communities, they turn large 4 bed properties into properties with 4 or 5 couples in them causing all sorts of issues from car parking to overwhelming local facilities .. and you only need one scumbag in the property to ruin it for everyone else. Not to mention licensing (nice earner for the local authority though)

Hello Manizheh. I'm afraid this is a "caveat emptor" or "buyer beware" situation, and "buy in haste, repent at leisure". The pointy-shoed estate agent was just doing his job, to get the best price for his client, whilst also evaluating what price you are prepared to pay. You were prepared to pay higher, so you did. The surveyor was also doing his job, evaluating the property's value from a mortgage provider's point of view. If you disagreed with them, you should have sought second opinions and not be swayed because of your belief that you needed to hurry. Buying a house is a big decision; you need to take your time and be prepared to walk away from any "deal" someone's trying to sell you.
And if you did overpay, I'm afraid that if you are a real business person you just need to learn to live with that. Don't let it chew away at you in resentment. Nothing is forever, except death and taxes, dodgy tenants and Shelter. You need to be hard-headed and practical. Will that £50,000 seem like nothing if you keep the house for 10-20 years and watch the capital value (hopefully) rise? And remember, you will get at least 28% of that £50K back when you sell, in the form of reduced capital gains tax! Should you spend a bit of money to get higher rents to earn the £50K back over time? Could you spend even more money and redevelop the house as studio flats, improving your GDV, earning back that £50K and learning new development skills to sit alongside your landlord ones? Or should you just cut your losses and sell, and - older and wiser - redeploy your capital elsewhere?
In my view there is no such thing as an "HMO value" for a house. An HMO is just the same as a regular house, but occupied by several unrelated people. If you, as a business-person, choose after purchase to add loads of ensuites, improve the EPC and fire systems to meet government standards, add extra fridges or ovens or bikes sheds and so on to meet the perceived needs of your tenant customers, then that is your affair. And if another landlord chooses to pay a higher price for that house when you sell, because it is already perfectly set up for her HMO business, that is again her affair, and good luck to you. However from an agent's perspective, labelling a property as an HMO in a particular market can often lead to a lower price, because there are fewer prospective landlord or developer purchasers looking to buy at any one time. He or she may even advise you to remove some of the ensuites and certainly the fire safety signs and internal fire doors before putting the house on the market, so that your property doesn't feel like a hotel and doesn't put off potential purchasers who are just looking for a move-in family home.
I would therefore say that you should value your HMO property just the same as any similar residential property in the area. Improvements or the property needing renovation will affect the price somewhat, but it really depends on who's buying and the overall level of demand. Think instead of the house in cash/income terms for yourself. To value the added-value of operating an HMO, you should just estimate your likely rents and deduct your running costs, how you value your time spend on admin, tenant-finding and repairs, likely void periods, and any HMO-specific improvements. Compare your net taxable profit with running the house as a traditional single-occupancy rental, or an AirBnB if that's a viable option, and make your decision, ideally with a Plan B and C in case Plan A doesn't work out.
I would also argue that unless you are super-confident about your market, you should never over-develop your HMO, but always have a gameplan to return the property to a single-family unit or - if large enough - to divide it into self-contained flats. You will then be ready if HMO demand dries up and you need to go back to the traditional lettings market.
I have no idea of the future for HMOs. Any current trend to grow the sector - which surprises me, given the hostility and heavy regulation it faces from all forms of government - may quickly reverse if the economy and people's incomes pick up, immigration reduces, and rates of housebuilding and property conversion increase. Enough people to damage the HMO market will then abandon HMOs in favour of flats and buying something themselves. But those are big 'ifs': the lack of housebuilding and the ever-increasing population in smaller and smaller housing units may just continue, along with more and more regulation, possible rent control, and the hostility of 95% of all politicians, local government officials, etc.

I have found myself asking the same questions recently, whether to convert one of my larger places or not. I think the risks , for me, outweigh the rewards. Whilst i feel sure that demand for rental property will continue to rocket owing to the UK's open border policy and some if not all of the expense may be tax deductible , i'm just as sure our national pastime of landlord hating will continue. What with local authorities threatening to revoke not one, but all of your licenses should any of your tenants step out of line. Witnessing how many commercial units are being converted into HMO's in our area at least, is there a danger the market could become over saturated and push HMO rents down ? Is it a good idea placing numerous people from different cultures and living habits in one shared space ? Remember, all of the overheads remain similar whether one room is let or all of them. And from what i can tell, the model only works on a high occupancy. If you were to have one tenant not paying and another room vacant, you could well be in the red.
I guess once the incoming labour government are announced later this year, all bets are off and the usual charities / pressure groups will get to work on Miss Rayner (which shouldn't be difficult) . Yet more legislation should arrive.

HMO's are 50% of my portfolio and a very successful 50% at that. I have been in HMO's for 15 plus years, yes they come with the extra work and sometimes a headache but that's why we receive far more income, every investment whether property, bonds, shares, crypto etc all come with the ups and downs and HMO's are no different. Valuations stack up better too, I have just remortgaged with paragon and OK there seems to be a lot more regarding regs but if you are a good professional landlord, there is no reason you should not have all the answers or the paperwork that is expected. I have one of the HMO's in Leicestershire, owned it for 14 years, ran it as a 'social drop off hostel' pretty much for the council to offload all their troubled scumbags with me, the work was high, the rewards were good but the headaches, police, neighbours, drugs etc where just getting too much. This house was my nemesis house as I have not had anything like this kind of tenanted arrangement before with any of my portfolio. I therefore decided to vacate them all, other than one, he left and HMP took care of him. After clearing the machetes, heroin, 12 needles filled with heroin and blood, removing the drawset that had been used as a toilet for number 2's, then we eventually got the place empty and cleared out. Remember these are the tenants the council passed on to the PRS as they didn't want to house them theirselves. So after some careful refurbishment and a period of sanity for the neighbours, we now have 5 working professional adults, who have all extended their contracts a number of times, we have a weekly cleaner, gardener, any maintenance is dealt with immediately and I keep an open conversation with all tenants on WhatsApp.The tenants are happy, the neighbours are happy and I am too. The house produces a monthly profit of £1200pcm after all expenses and mortgage. My point I guess is, if you want success, then you have to provide a service that people are happy to pay for, deal with problems immediately and theoretically consider yourself living there. One of my tenants has moved to the area for work, he is a solicitor, he is himself an HMO landlord and he has just signed a further 12 months with a lump sum payment of rent for the entire year. Happy days.

I could point you to a number of large properties in Derby that have been converted to HMOs, as you will gather from my previous comments I am not in favour of that, but that aside, the calibre of tenants that are being placed in these properties are basically turning some streets into slums. No doubt the landlord is turning a pretty penny, but is he actually getting paid. It is pretty obvious in some cases he is not and I know of one instance where all the other tenants of the HMO left and he can't get new tenants because the scumbag who is still in one of the rooms is a social disruptive. The landlord can't get him out as he is in the 'court queue'.

I am in a situation where I have one of the very few large 4/5 bed houses left in the immediate area which has NOT been made into an HMO or being used for exempt accommodation (because the properties are so ripe for this use)

This leads to it's own problems. Because of the way some of the HMO's are run, and the client base, there are the standard issues like rubbish & constant mattresses outside, ASBO issues etc private families don't want to necessarily rent here even though is a bigger than average house, schools in walking distance and close to shops/transport etc.

This leaves full benefit recipients. Those who do have 'eligibility' for a 4 bed are much larger families - therein lies the next problem Many are 'non english'. There are language and big cultural differences. Many have not rented directly before having had the government/council look after them to this point. They have no idea how things work, what to do when they move in etc...this leaves me LL and full time social worker, regarded as an employee of the state. Err NO!

The other option is families with ASBO issues themselves (which is why they are on the council list for re-housing), or single mums with many, many kids.

So do I leave the property empty and wait, do I rent out to benefit tenants knowing the very high risk and inevitability of having nightmare tenants or do I try and find an exempt accommodation supplier to lease my property for a period?

The property is very keenly priced and under the market rate to try and attract those working or those that can get hold of a guarnator. All I want is an decent tenant who wont trash it. Not much to ask is it really?

Rock and a hard place.

Our cities were cleared of slums where people lived in dreadful conditions. Often, they would rent just a room.

HMOs are introducing a similar system.

And all because the government refuses to protect our borders.

Reply to the comment left by Reluctant Landlord at 15/04/2024 - 15:38
Reluctant Landlord, I would sell it

Reply to the comment left by GlanACC at 15/04/2024 - 19:05Why would I do that? Hand money to the gov in the process? Who would buy anyway? Too big for a FTB.
Inevitably go to someone who wants as an HMO? probably, but there is a ban on any more HMO's in the area.
Not a student area.
Exempt accommodation route? - possibly but then the income wont stack up against for what it sells for unless I literally give the property away?