Wednesday 22 February 2017

Is individual room council tax banding killing off HMOs in Clapham?

I've been getting a lot of feedback through the investor grapevine that HMOs (House in Multiple Occupation. Generally let room-by-room, nobody knows each other, each bedroom is effectively a household) are getting more and more difficult to run. You will have heard about new regulations, I'm sure, for "vanilla" buy to let properties over the years. You have to carry out Right to Rent checks, you have to deliver the "How to Rent" booklet and much more of course. HMO managers have even more red tape to contend with. I won't bore you with all that now of course.

The real attack here via the council tax. Some councils in the country have taken to banding HMOs by the room, not by the whole property.

What does this mean?
Well in layman terms you as the landlord or HMO manager will be paying the bills (including of course, council tax), and this bill will go up substantially. Naturally a room is of less value than a whole house, but an HMO of say 6 rooms charged by the room will end up costing more than 1 house. A moneyspinner for councils then, isn't it?

I don't care, I don't let out an HMO
This may be. For the moment. You will find that Southwark for instance is clamping down on properties let to multiple tenants and multiple tenancies. If you are, therefore, letting by the room you run the risk of, in the future, being caught in "additional licensing."

But I'm in Clapham/Lambeth
You may be. Lambeth does not have as strict HMO licensing criteria as Southwark, this is true. But it may only be a matter of time before they catch on to this money spinner.

What do I do?
In my experience zones 2 and 3 are extremely high demand areas for letting. ESPECIALLY the bigger properties. In my 14 years of property in South London I have yet to experience a low demand for 3, 4, 5, 6 bedroom properties. They have always been scarce on my agency's books and always fly out the door. So why not let as one unit? Although not fool proof this will certainly help the council be convinced of your argument NOT to band it by room, but by property address. After all you are arguing it's one household, despite the group being unrelated. They are all friends, they cook together, and so forth. Criteria change all the time of course so this may not be fool proof.

What are the other benefits of letting as a whole?
Well I'm a big fan of this, so here's what it means for me:

1. Easier management. Deal with 1 tenant for instance, easier on the communication front.
2. Less repairs, you generally get less wear and tear
3. All of the tenants move in at the same time. If one does want to move out it will be his responsibility to find a replacement. They all want to terminate early? They are to pay for your agent to find a replacement tenant AND pay rent up until a new tenant takes possession.
4. Easier to get finance if you let on 1 AST
5. Generally eliminates the need of HMO Licensing (take advice on this of course, this will be council dependant) If you'd like me to put you in touch with an expert who can advise you on your property's HMO licensing requirements then let me know and I will connect you.

So to conclude - letting is becoming harder, so you as an investor have to look for ways to invest more profitably. This will mean making your life easier and it yielding you better returns, being higher income or lower costs. I am certain that letting a large property as a single unit will be easier and more profitable than letting it room by room, certainly once you factor in your time involved letting rooms and dealing with 6 tenants instead of 1 all year.

If you are looking to pick my brains on your property strategy do get in touch. I can help you define your strategy and help you build a profitable property portfolio. Having been active in buy to let in South London for nearly 15 years you can certainly make good returns. You don't always need to have millions in the bank to invest in London. Do you want good returns? Do you want to improve your current returns? Start the conversation:

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