| by Kenneth Chase | 4 comments

HMO Property Myths | 5 MYTHS BUSTED | Simon Zutshi


– In this video I wanna cover
the five myths about HMOs. Houses of multiple occupation. My name’s Simon Zutshi, I’m
the author of Property Magic, the Amazon number one
property best seller, I’m the founder of the
Property Investor’s Network, I’ve been investing in
property since 1995, and I’ve been a student
HMO landlord since 1998. And a lot of people want to
get into HMOs ’cause they want the best strategies to
quickly replace your income. However, a lot of people put
off because what they think they know about HMOs, and
actually, some of these are the biggest myths
that are just not correct, or maybe they’re partly correct. So that’s why in this video I wanna cover the five big myths about HMO properties. So, HMO property myth number one is that there is an oversupply of HMOs everywhere, and so you shouldn’t do HMOs. Well, let’s be honest;
there are lots of HMOs, and in most areas there
might be a little bit of an oversupply. However, if you look at
the stock that’s actually available, you go onto spareroom.co.uk, you’ll see that most of
the accommodation available is very average, very plain, HMOs. And I maintain if you have
good HMOs, better than the average quality in
the area, then you should always be able to find tenants. So yes, if you’re trying
to do a very average, bog standard HMO, there is an oversupply. If you’re doing the higher
end, better quality, people will always want
those and be prepared to pay more money to live in
a better quality property. So, myth number two is that
HMOs are a lot more work than single let properties. And I would agree; one
HMO is more work than one single let, buy to let property. However, if you look at
the income you can create from a good HMO, it’s
equivalent to about four or five single let properties. So to make a fair comparison,
you should look at the amount of work involved
with one HMO compared to four or five single
lets, and I would suggest an HMO is not actually that much work. So when you know what you’re
doing, you have great systems in place, and it needn’t take much time to have your HMO up and running. The next big myth about
HMOs is that every HMO needs to have an HMO licence. That’s simply not correct. So an HMO, technically,
is a property that has three or more unrelated people
living in that property. However, not all HMOs need licencing. The government guidelines
that came out in October 2018 say that if you have a property
with five or more tenants then you need to have an HMO licence. Now, some councils interpret
it in a different way and they say three or more tenants, so the key here is to
contact your local council, the HMO licencing
department, speak to them, and understand what are the
requirements in your area. Now if it does need a
licence it means you have to fill in an application
form, you have to provide a sketch, floor plan of the property, to say where the fire doors
are, and the smoke alarms, et cetera, and you need to
make sure the property’s setup correctly with all
the safety requirements. I believe you have a moral
and ethical responsibility, as well as a legal
responsibility to make sure you’re providing safe accommodation
for all of your tenants. The next big myth, myth number four, about HMOs, is that all HMOs
need planning permission. Again, this is not correct. So let me explain planning to you, and it’s a little bit complicated,
but I’ll try and keep it as simple as possible. So if you have a larger HMO
with seven or more tenants, it’s no longer seen as
a residential property, and in fact it’s its own planning clause called sui generis, so
you would need to apply for planning permissions,
get a change of use from a residential into
sui generis for seven or more tenants. Now if you have a smaller
HMO, up to six tenants, then in most areas of the
country you could take a normal house, convert
it into an HMO for up to six tenants, and you can use what’s called permitted development,
that means you do not need to get planning permission. Unless it’s in an article four area. Now, article four has
come in in some parts of the country, it is
coming into some parts, and in some parts it will never come in. And what it is is the local
councils who’ve applied article four, means they’ve
got the right to withdraw permitted development rights. So therefore if you
wanna take a normal house and convert it into an
HMO for up to six people, you actually now need to
get planning permission to be able to do that. So, most councils that
brought article four in, they don’t want more
HMOs, so if you apply for planning permission, it’s probably gonna be rejected automatically. However, if your property
meets all the criteria, it doesn’t mean it
won’t get planning under the correct conditions
if you go to appeal. The other thing is, in
an article four area, you can actually buy an existing HMO, and as long as it’s
been an HMO since before article four came in, and
it’s been used continuously during that time as an
HMO, you could apply for what’s called a certificate
of lawfulness which means you don’t need to get planning. So if it is an article
four area, the key here is to speak to the local
council, this time the planning department, find out
when article four came in, so you know how long you have to make sure you got the correct records for. If article four isn’t in place, find out, are there plans for it to be coming in? And if so, when is that the case? In which case, if you’re taking a house and turning it into an
HMO, you need to make sure it’s finished and tenanted
before article four starts in that area. Another quick tip for you here; if you look at the boundary
on which article four lies, there might be a street
which has some HMOs, and half of the street is article four, and the other end of the
street is not article four, and that end of the street
you could absolutely do HMOs, and it might be a perfect location. So always look at the boundary,
really good tip there. And the final HMO property
myth is that you need to have lots of money to do HMOs. Well I would agree, if you’re buying HMOs, especially if doing conversions, there is money required to do that. Doesn’t mean that it has to be your money. It could be money you’ve
borrowed from someone, it could be a joint
venture, where you find the properties and do the work, and someone else puts in all the money. Or there are a couple of other strategies where you don’t have to
put in a lot of money. For example, rent to
rent, where you take on someone’s property,
maybe they’re struggling to manage it themselves, and you give them a guaranteed rent, and you
rent it out for more money, such as, as an HMO. And you make the margin,
the difference between what you pay the landlord, and what you charge the tenants. It’s a great strategy, especially
if you’re starting out. The other thing is a
purchase lease option. Similar to rent to rent,
you pay a guaranteed rent to the landlord each month,
you rent the property out, you make a margin, but with a PLO, purchase lease option, you
also have the right to buy the property in the future. Now that’s really powerful
because you can get potential equity growth
as well as great cashflow from a property. So those are the five most
common myths about HMO property. I do hope I’ve explained some of them, and really, if you know what you’re doing, you can make a huge
amount of money from HMOs. I’m not saying it’s easy,
there’s definitely work involved, but the time
and effort you put in will be very well rewarded. A good six bed HMO could
make you a thousand pounds profit a month, therefore
you probably don’t need that many HMOs to actually
replace your income and allow you to have the time
to do what you want to do. So I do hope this video has
been interesting for you, please do comment below, please share, please like, and if
you’d like to learn more about HMOs, I’m creating
three in depth videos of a lot more training about
HMOs, all you have to do is click on the link below this video, and you’ll be able to
subscribe and get access to those three videos. I don’t wanna just send them to everybody, I wanna send the people
who are interested in HMOs, that’s one way to opt-in,
give us your email address, and we’ll send those video training to you over the next few weeks. So my name’s Simon
Zutshi, I’d encourage you to invest with knowledge,
invest with skill, thanks for watching.

4 Comments

R Mendola

Oct 10, 2019, 2:37 pm Reply

HI Simon,
Would you open a limited company for a rent2rent HMO

Lord elim

Nov 11, 2019, 10:05 pm Reply

Great video simon. Ive got one question to ask. what is the max price i should spend on a HMO property? 150k or 200k or more than 200k? Thank you.

Gordon Russell

Dec 12, 2019, 7:37 pm Reply

Appreciate the advise..

1fFrances m

Dec 12, 2019, 9:19 pm Reply

Hi Simon, couldn't find any link to click on to get the 3 videos. I'll pls love to watch or listen to more video's on hmo.
Tnx

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