FAQs - HMOs Explained

What does Parata Property do?

Parata Property provides a turn-key service for national and international investors looking toinvest in HMO’s in the UK’s North West property market. In summary our service consists of: sourcing and securing the property, managing the conveyancing period, project managing the refurbishment, ensuring the property is compliant and licensed, furnishing the property, coordinating the managing agent and delivering the project.

There is a lot more that goes into the process, but this is a basic outline! Essentially we cover everything from A-Z for our clients wanting to purchase a HMO in the UK.

What actually is an HMO?

In the UK, HMO stands for House in Multiple Occupation. It refers to a type of rental property where at least three tenants from more than one household share common facilities such as a kitchen, bathroom, or living area. HMOs are subject to specific regulations and licensing requirements to ensure the safety and well-being of the tenants.

What are the benefits of owning a HMO?

Where do we start? There are multiple benefits for owning a HMO. We’ve listed a few below.

1. Increased rental income: HMOs often generate higher rental yields compared to traditional single-let properties. Since multiple tenants occupy the same property, landlords can charge individual rents for each room, resulting in a higher overall rental income.
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2. Diversified tenant pool: With an HMO, landlords can attract a range of tenants, such as students, young professionals, or individuals looking for affordable shared accommodation. This diversification reduces the risk of having a property vacant for extended periods.
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3. Reduced financial risk: With multiple tenants, the financial risk associated with rental income is spread across several individuals. Even if one tenant fails to pay rent, the landlord may still receive income from the other tenants, mitigating the impact of non-payment.

4. Flexibility in property use: Converting a property into an HMO can allow vendors to maximise the use of the available space. By creating individual rooms for rent, larger properties that may be less desirable as family homes can be effectively utilised for rental purposes.

5. Potential for capital appreciation: In certain areas with high demand for shared accommodation, HMO properties may experience greater capital appreciation over time. This can provide an opportunity for the vendor to sell the property at a higher price in the future.

How do I ensure my HMO is compliant?

It's important to note that operating an HMO comes with additional responsibilities and obligations for the landlord, including complying with council and safety regulations, obtaining the necessary licences, and managing the challenges associated with multiple tenancies. However, do not fret, as Parata Property takes care of all the necessary steps to ensure we deliver a fully compliant and licensed HMO.

Will you manage my HMO and provide tenants?

Unfortunately not, as we are not an agency. However we have worked very hard over the years to ensure we have built extremely strong partnerships with a local, trustworthy HMO agency who provide a turn-key management service for our local and international clients. At the client's discretion, once the property is ready we will provide a formal handover to ensure that the process remains completely hands off.

Should I do a HMO conversion or just buy a ready made turn-key HMO?

Great question!

We always recommend doing the HMO conversion yourself (or using Parata Property (😉).

Here is 3 main reasons why:

The Price: Turn-key HMO’s will always have a premium added on to them. The companies that develop these properties will need to make their money back somehow.The yields advertised for turn-key HMO’s are usually anywhere from 7-10%. The ROI’s on our deals are generally in excess of 15%. This means that as an investor you are paying more for the property than if they done the works themselves.
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The Works: The health of an investment should be measured over its lifetime. There are many reputable companies that produce turn key hmos, however there are also a lot of not so good ones. When buying turn-key you are trusting that all the build works have been done correctly and to a high standard as you won't have any oversight over what was spent and what was actually done. Leaking pipes? Mould? Faulty electrics? A lot of trust needs to be placed in the turn-key provider to ensure these won’t crop up 6 months after purchasing the property. However when doing a HMO conversion yourself you will see the refurbishment works take place step by step. You will have a complete overview of what was done and assurance that your property will be bulletproof well into the future

The Refinance: You will initially need less money upfront when buying a turn-key HMO, however there will be very limited scope to refinance. When doing the conversion yourself, you will be able to capitalise on the increase in value that has been created from conducting the refurbishment works yourself. This will mean that when it comes to refinance time you will be able to pull out a lot of your initial investment.

What if I want a refund?

Our goal is not to earn a quick pound - it is to build strong, long term honest relationships without clients. For this reason we have implemented the following refund policy which applies tothe following two scenarios:
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Scenario 1 - There is an issue with the property or information disclosed on the deal sheet that isn't accurate.
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There will be a full refund of the sourcing fee should there be any issues with the property that either we have missed or that has been revealed in a survey. For example, if the property needs a new roof, which we didn't budget for, and subsequently exceeds our estimated build quote, the client will receive a full refund. Another instance may be that we anticipated an End Value (GDV) of £225,000 and a pre-purchase valuation report has given a figure of £200,000. In this instance Parata Property have disclosed inaccurate information on the deal sheet and the client will receive a full refund.

‍Scenario 2 - There is not an issue with the property or information disclosed on the dealsheet.

Situations arise, circumstances change or sometimes people just change their mind. We do not want to force anybody into purchasing a property they do not want. In the instance that there is nothing wrong with the property or inaccurate in our estimations, we will still provide a refund but will however need to keep an administration fee to cover our time, resources and energy employed thus far.

What is Article 4?

Article 4 is essentially a circle that the local council draws on a map. If you want to convert a property to a HMO inside this circle then you will need to go through planning which may or may not be approved.
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At Parata Property we do not source property deals inside that circle without explicitly stating. The majority of our property deals are in areas where there is no article 4 restrictions and converting a property to a HMO comes under ‘permitted planning’. There are no restrictions to our developments as long as the property is converted in accordance with HMO and local council guidelines, which is what we ensure from the outset.

Aren't there too many HMO’s?

In short, there’s not enough. This isn’t just for HMO’s but for UK housing in general. The UK is a small island with limited land and a growing population. The UK government releases official reports every year detailing the extreme shortage of housing - and affordable housing at that. Local councils are also desperate for more affordable and social housing to help with the shortfall needed for the vulnerable, homeless, asylum seekers etc.

Demand for HMO rooms remains extremely strong as HMO’s help by providing affordable housing and utilising one house to accommodate multiple tenants.

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FAQs - Parata Property

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FAQs - Parata Property

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