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7 Step Guide To Creating Your Perfect HMO
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Do you want to create a high specification HMO, understand all the regulations and not have a builder run rings around you?
If so, read this 7 step guide below….
​I’m hoping this blog is pretty relevant to a lot of readers, as the topic of high spec HMO’s is something I deal with a lot. HMO’s have been (and still are) one of the most popular property investment strategies of the last 15 years or so, with many investors successful in creating businesses around this multi-let model.
I was one of these relatively early adopters and purchased our first HMO 11 years ago, and we have continued to invest and let HMO’s ever since. The majority of our portfolio is professional HMO’s, so we should know a thing or two about creating a good shared space.
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Additionally within my consultancy business, 75% of the clients I work with are trying to establish a premium HMO brand. The emphasis here is on ‘premium’ - when I first started, design led HMO’s weren’t really a thing. For some context here, 10 years ago a grey feature wall in the lounge set you apart from the crowd! However as the HMO market has professionalised in all areas; regulation, tenant type & design, it has become more important than ever to nail this strategy in each of these respective areas.
Over the next few paragraphs I’ve made a couple of assumptions: you have already found your goldmine area; done your numbers; and know your market. In this blog therefore, we are going to be talking about the intricacies of buying and refurbishing a design-led HMO, and most importantly not letting the builder run rings around you! Let’s get into the timeline of events below….
Step 1 – Purchasing
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There’s a lot to get through here so we’ll leave the intricacies of the legal process – my single piece of advice would be to engage with a solicitor who understands HMO’s. My second piece of advice is understand the difference between a HMO licence and an Article 4 direction. A HMO licence deals with safety & regulation, where as an Article 4 direction deals with planning – do not assume the property you are buying has planning to be a HMO just because it has a HMO licence.
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If your property is within an Article 4 area, ensure as a minimum you have 10 years’ worth of unbroken tenancy agreements showing its use a HMO. Ideally you want either C4 planning granted or a certificate of lawful use to be watertight. If you plan on letting to more than 6 people, this is a Sui Generis HMO and will need planning, whether it is in an Article 4 area or not – again, make sure planning is in place or you have good record of it being used as a HMO for 10 years or more.
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Understand the phrases Article 4 & Sui Generis before moving forward….
Step 2 – Feasibility & Design
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Once you have secured the property you are now into the feasibility & design stage – if you’ve read any of my other Project Management articles, you will know I bang on about front loading design a lot. It’s much easier to change something on a drawing rather than once it is built. There’s a few stages to get through here, the first being a measured survey of the building, so your architect and interior designer know what they are dealing with and can space plan accordingly.
The second is to engage with an architect who can produce planning & building regulations drawings, so you can submit them for planning if needed. Depending on your intentions with the building, you may be able to skip the architect stage completely and move straight to interior design. Essentially. if you are just rearranging the internal layout and not adding extensions or changing the external appearance, you may not need architectural input.
This last stage is crucial – I cannot emphasize enough the need for good interior design and employing a professional to do this. A good interior designer will optimise your layout, understand your brand and specify a design pack which reflects this. Ultimately, bringing your high specification vision to life.
Step 3 – Planning & Regulation
I always state to clients that good project management is the ability to spin plates & connect dots and now you know what you want to build, this is the stage where it really becomes apparent. You need to ensure your final product is complaint and legal, so you will need to engage with some or all of these professionals:
The planning department – as mentioned above, if you are creating a HMO which will be occupied by more than 6 people, this will need planning. Likewise if you are planning large extensions, dormers or changes to the external appearance then you may also need planning permission.
Building control – you will need to engage with a building control company who will periodically check your works and sign them off. My recommendation is to always use a private building control company as opposed to local authority, as they tend to be more user-friendly.
Surveyors – there are two potential parties you will need to talk to here. Firstly a structural surveyor regarding the removal of any load bearing walls or chimneys (for example). Also an asbestos surveyor to have an asbestos demolition survey carried out if there is suspected asbestos present.
Assessors – three professionals needed here, a fire risk assessor to ensure fire safety, an EPC assessor to update your EPC rating after the works, and potentially a sound assessment company if planning has dictated this as part of the permission conditions.​
Party wall agreement – finally if you are carrying out any structural works and you have buildings attached, you may need a party wall notice. This is an official process that you need to follow and engage with your neighbours about, giving sufficient notice.
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Step 4 – Tender preparation
This is a crucial stage where you are pulling all the information together which you have generated from the stages above. This all goes into one tender pack, which you then send out to perspective builders in order to receive prices back - we will assume here that one main contractor is being used to complete the whole project.
I could (and should!) write a dedicated article on this stage, as it’s where many a project is doomed to failure if this is dealt with incorrectly. A few words of advice here – only go out for prices to builders once you know exactly what you want, and don’t try to hide or expect works to be done that are not priced for. A builder is never going to work for free, and will either over-charge when they realise works aren’t specified, or simply walk off the job. This is the stage where I do the most work with my clients to ensure the correct processes are followed – do it right!
Step 5 – Tender review
If step 4 is handled in the correct way, you should now have at least 3 prices back from builders. At this stage you need to compare the prices and dig into the detail. Again this can be difficult & time consuming; however, it’s an important stage to iron out the finer details. It is usually wise to start working with one preferred contractor to iron out the details at this stage for efficiency and you want to be agreeing contract wording, payment structures & timescales.
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Another piece of advice here – this is the point throughout the whole project that you will have the maximum leverage over the contractor. If you want something, now is the time to talk about it! Unfortunately, once the contract is signed and you’ve handed those keys over, you are very much at the mercy of the builder you have chosen to do the right job.
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Step 6 – Construction
Once construction has started, as a client it is your role to oversee 3 main areas – time, cost & quality (see a previous article where I talk about the ‘time, cost, quality triangle’ and the importance of understanding this!).
Essentially you need to:
• Hold your contractor to account on timescales
• Monitor works and pay the correct amount to your builder
• Check workmanship and ensure good quality is achieved
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Step 7 – Snagging & Handover
Once you’ve got to this final stage in the process you are nearly home & dry, you’ve managed to navigate the murky waters of buying and refurbishing a HMO! The final stage is to ensure the property is snagged properly; making sure every socket works and no taps leak, ensuring quality of paintwork and furniture installed. This is a time consuming but worthwhile process that you should do as a client, project managing the process right to the end.
Finally, you need to ensure that you have all the operating manuals for each appliance, and also have proof of purchase. It’s not easy three years down the line, contacting the builder to ask for proof of the five year warranty on your boiler!
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To bring this to a close...
As with most things in life, each of the stages above aren’t necessarily complicated, however they can be hard to do if you don’t know how. It is very time consuming to create a high specification HMO; however, with diligent work at each stage, along with a good dose of gumption dealing with contractors you will do just fine!
And just one final piece of advice – in construction (and property refurbishment), if you are ever in doubt about anything on site, raise it & address it!
Click here to see how Dan can help on your next project...