Should I rent out my 3 room house as an HMO or single let?
As a landlord, making the right choice for your property is key. So if you have a property with multiple rooms, should you rent it as a HMO or a single let?
There is, of course, no straightforward answer for this, as it all depends on you and what works best for you and your business.
Rent Guarantee Insurance
A HMO could make you more money, but usually requires more work than a single let. So let’s go into your options in a little more detail.
House in Multiple Occupation (HMO)
The UK government defines a HMO as ‘a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen’.
This means that you have several individual tenants, as opposed to renting to a single person, couple or family.
If your property is in a student town, then a HMO is a good idea, as students are regularly looking for rooms to rent. If you have a high quality property, with easy links to the local university or town centre (after all, students need to access fun things to do, not just the library), then a HMO would be a good idea.
If you decide to rent as a HMO, you should also consider renting your property furnished, as this could catch the eye of a potential tenant, over an unfurnished room. You will also be able to charge a little more for a furnished room over an unfurnished room.
You should also look into the requirements of a HMO over a single occupancy property:
- Speak to your local council. If you are considering renting as a HMO rather than a single occupancy, give your local council a call to check if you require a licence. Some councils don’t require a licence for small HMOs, only for large ones, so make sure you check your local requirements!
- Define if you’re large or small. If you are renting out a large HMO, you must have a licence. In England and Wales, a HMO is defined as large if it’s renting to 5 or more people; if some or all tenants share toilet/bathroom or kitchen facilities; at least one tenant pays rent
- Get a licence. You will need this before your tenants move in or you could face a fine – so be sure to get everything sorted out before you rent the property out!
- Update your licence. Your licence is only valid for 5 years, so just as other legal requirements, you will need to update this licence regularly before it expires
If, for example, you are planning to rent a two-bed property to a couple and their friend, your local council may define this as a HMO, so make sure you find out before they move in and before you all sign the tenancy agreement.
If you’re ever uncertain – check!
The usual rules apply to running a HMO – you’ll need all the legal certificates, including:
- Gas Safety Certificate
- Fire alarms installed on every floor and checked before each move in to ensure they’re working correctly
The property will, of course, need to be safe and habitable and suitable for the number of people you’re renting to. The manager of the property (either yourself or your agent) should be ‘fit and proper’, meaning they have no criminal record and have not previously breached landlord laws or code of practice.
However, there are additional requirements for a HMO:
- Send in your updated Gas Safety Certificate. This needs to be updated every year and a copy of the updated certificate must be sent to the council every year as well
- Provide safety certificates for all electrical appliances. These don’t have to be sent in regularly, but they do need to be available if and when the council requests them
- Additional conditions. Councils may add their own additional requirements to your licence, usually relating to the standard of your property. They will let you know more about this when you apply for the licence
So let’s look at the pros and cons of HMOs:
Potentially a higher return as renting out multiple rooms
Usually a higher tenant turnover and juggling multiple contracts
Easier to handle void periods as other rooms will be occupied and will cover the costs
Licencing required, which can cost from £1,000 - £6,000, depending on the size of the HMO
Standard legal compliance required
Additional checks often needed
Spread the financial risk
Potentially increasing the possibility of damage
H2: Single lets
Now let’s take a look at a single let. As you probably know, this is literally the opposite of a HMO, where you let to a single person, couple or family.
Obviously, it’s a lot less work than a HMO because you aren’t juggling multiple tenants and contracts. If you have a tenant who settles in for a long time, as long as you keep your certification up-to-date and stay on top of any issues your tenant reports, it shouldn’t take up too much of your time.
But how do you decide if this is a better option for you?
- Size of the property. A two bedroom would might be ideal for a couple or a single tenant, now that hybrid work and work-from-home options are so popular, as the second bedroom can be used as an office space. 3-4 bedrooms would work as a HMO, but also might be ideal for a family
- Location. HMOs thrive in university towns and cities, where people are always looking for somewhere to live. But if your property is in a more suburban area, with great local schools and parks, a single let to a family might be a better option
- Your time. You can see above that a HMO is a lot more work than a single let, so it depends on how much time you can dedicate to it. If you have a full-time job and lots of other commitments, a single let is a lot less work and therefore a better option for you
Single lets are also a lot easier to insure, as things like Rent Guarantee Insurance are trickier to get for HMOs compared to single lets.
So let’s look at the pros and cons of single lets:
Single contract to look after, potentially longer term stays
Less profit than HMOs
No additional expenses like licences required
Void periods can be expensive
Standard legal compliance required
No additional checks, nothing to be sent to the local council
A single let is clearly the easier option, but it really does depend on the area you live in and the size of your property. Really consider your time too, this may seem like a small thing to think about, but HMOs can be very time-consuming, so think before you commit!