Last week our very own Giovanni Patania took part in a Qandor webinar as a guest speaker. Alongside Giovanni was host Mike Frisby, an accomplished property investor, developer and HMO landlord and Jeremy Ashworth, a developer whose projects include multiple flat conversions in West London.
The aim of the webinar was to provide insight into how to drive bigger returns from your HMO property by making good choices during the early planning and development stages.
You can watch the full hour long webinar here but are our top 4 takeaways from the event are explained below.
1. Understand the main HMO categories
There are 3 main HMO categories and understanding the requirements surrounding them before you start development is critical. Larger is not always better as bigger developments come with increased complexity, legislation and longer timeframes. If you do have an opportunity for a larger HMO however, the returns can be huge. The first step is knowing what category your property falls into and the demands it will place on you. The categories are as follows:
Maximum Number of Occupants: 4
Is Planning Permission Required: No but we would strongly recommend you apply for permitted development and change the property from a C3 to C4. This provides protection should your area have an article 4 direction applied as you will still have permission for the development.
Are Building Regulations needed: Not if the work you are doing is only cosmetic.
Is licensing required: You only need a selective licence but always check with your local authority as some will not even require that.
3-4 bed HMO’s are the most simple, straightforward developments. They are perfect for starting your HMO journey as you learn the ropes.
Maximum Number of Occupants: 6
Is Planning Permission Required: Same as with 3-4 bedroom HMO’s, development can commence without a permitted development but we would always recommend you apply for one.
Are Building Regulations needed: This is where things get more complicated. You will need building regulations for this size development, specifically you will need to pass fire and ventilation regulations. These properties typically need some kind of extension which will also require building regulations.
Is licensing required: You will require mandatory licensing which is more complicated than selective licensing. To gain this licence you will need to provide your council with various certificates. It’s also important to note licensing is applied for once the development is completed so you will need to factor in these requirements during the building work or risk additional remedial work.
Maximum Number of Occupants: The number of occupants can exceed the number of bedrooms but will require negotiation with the council so additional time must be factored in during the planning stage.
Is Planning Permission Required: Due to their size these are no longer residential properties that are being converted. They are more likely commercial buildings and as such require full planning application. They may also require committee meetings, consultation periods, and letters to nearby neighbourhoods to ask their opinions on the development. This all makes these kinds of developments far more complex.
Are Building Regulations needed: Building regulations will also be required for fire, ventilation and acoustics. The acoustic performance is a key consideration here as building control will require a higher level of performance which likely will result in thicker partition walls. This will obviously impact space and development costs.
Is licensing required: Mandatory licensing will be required.
2. Build Relationships
The larger your development are, the more impact you will be making on the surrounding area. This will mean more touch points with the council and residents in the local neighbourhood. But even with smaller developments you will want to build relationships with estate agents, letting agents, contractors and architects. Here are the main relationships you will want to set time aside to foster.
Estate Agents: Gone are the days when you can find a good property on rightmove. You need to get back on the phone and build relationships with the people who will come across new properties first and get them to call you before anyone else.
Letting Agents: Before your HMO is complete you’ll want tenants lined up and ready to move in. More than this however, you want the right type of tenant who will pay their rent on time and to the value you expect. Building a relationship with local letting agents will allow you to mine them for information during the development phase so you can plan your project to your target markets demands. This early consideration means you’re building a HMO for a specific type of person and have a letting agent who knows they can fill the space.
Neighbours: Your properties neighbours will get letters from the council and notices on lamp posts during the planning phase so get in front of them before these official documents land. Take a morning one day to spend 3 hours walking door to door and introducing yourself. Show them past developments you’ve done and allay any fears by telling them you’re only looking to put in tenants who will be good neighbours.
3. Build for a specific tenant
At its core, maximising your HMO development means having full occupancy from tenants who provide a high rental income and pay on time with minimal hassle. We’ve already highlighted the need in working with a letting agent to understand your ideal tenant’s needs but this goes beyond room size. You need to think about the finishing touches that will make your HMO stand out from the crowd. This might mean more being spent on fluffy carpets, modern furniture, stylish fixtures and fittings or even the materials used on the external walls of the property. A HMO is a long term investment however and these extra costs are minor when compared to the higher rental incomes they can generate.
4. Location, Location, Location
Location is key, not just for the local amenities, transport links and proximity to towns, but also in how established the HMO market is in an area. A well established HMO market will mean more competition and tighter margins. You want to find new locations with a weak HMO presence. Also, look for locations where there’s an injection of investment from businesses which will drive up demand from tenants as the job market grows.
These were the top takeaways we took from the webinar but there are lots of other important points such as when to consider a specialist HMO architect and the value they can provide, how to plan for Article 4 Directions, the 3 phases of a HMO development, the difference between planning and building regulation and how at the end of the development you can get your cash out to reinvest in the next project.
All of these points and more make the video a must see for both experienced and novice HMO developers.