If you have a landlord client who is looking to purchase their first House in Multiple Occupation (HMO) or Multi-unit Freehold Block (MUFB), there are several important factors they should consider:
1. Licensing Requirements
Depending on the location of the property, landlords may need to obtain a license from the local council to operate an HMO. It’s essential to check the licensing requirements in the area and ensure the property meets the necessary standards before purchasing.
2. Safety Regulations
HMOs/MUFB must comply with specific safety regulations, including fire safety standards such as smoke detectors, fire extinguishers and fire exits, electrical safety regulations, and gas safety checks. A landlord should check that the property can meet these requirements before purchasing.
3. Tenancy Agreements
The landlord should ensure they have robust tenancy agreements in place that outline the obligations of both the landlord and tenants. This is particularly important for HMOs, where multiple tenants are living in the same property.
4. Target Market
What group of tenants are you looking for? What level of furnishings, equipment will be required?
5. Management
Managing an HMO or MUFB can be time-consuming and requires the landlord to stay on top of maintenance and tenant management. It’s important to consider whether the landlord has the necessary skills and time to manage an either property type effectively or whether they need to engage a property management company.
6. Location
The location of the property is essential. Landlords should consider whether there is a high demand for HMO/MUFB rental accommodation in the area. Also access to amenities, travel links and local employers are important to many of these tenants.
7. Financial Considerations
Landlords should consider the financial aspects of owning an HMO or MUFB. These include the initial purchase costs, ongoing maintenance and management costs, together with the expected rental income. It’s important to carry out a detailed financial analysis to ensure the investment is viable and profitable.
8. Property size
The property should be large enough to accommodate multiple tenants comfortably. The landlord should consider the number of bedrooms, bathrooms, and communal areas such as kitchens and living rooms.
9. Property condition
The landlord should assess the property’s condition carefully to determine any repairs or renovations that may be needed before renting it out. This includes checking the condition of the roof, plumbing, electrics, and heating system.
10. EPC rating
The government is currently proposing that all rental properties offered to new tenants should have a minimum EPC rating of C by 2025. Landlords may, therefore, want to ensure the property EPC rating is C or above now. If the property is vacant, it may be worth considering carrying out necessary improvement work to improve the EPC rating.
Overall, buying an HMO/MUFB can be a lucrative investment for a landlord, but it requires careful consideration of these and other factors to ensure that the property is a good fit for their investment goals and management capabilities.
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