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I had a few questions regarding HMO licences, mortgages and limited companies. To better understand my situation i'll just give you a brief.
I am currently in the process of selling my 2 bed flat in Cornwall which i do not have a mortgage on, i have been letting this property for the last 10yrs and have just broken even (i know many have advised for me to keep it and mortgage to expand my portfolio, but the property is under mine and a family members name (joint ownership) - so easier to just sell and take the money to utilize). *Please note by breaking even i am applying it to the value of the property and not including the rental income i achieved.
So now i'm looking to invest in one of these areas: Liverpool / Manchester / Birmingham - ideally Birmingham as i'm located in Bristol and just makes it a bit easier for me to scout the area which i intend on doing this weekend. Plus i have a few contacts in the building industry i may be able to utilize.
I have a budget of £120,000 - £150,000 to buy said properties and include all necessary fees such as stamp duty, light renovations, furniture etc. My thought is to buying potentially 2/3 properties with deposit and HMO interest only mortgage. Now, i have read through articles on this forum as well as read some books and the Birmingham Gov website regarding HMO and i believe i would not need a licence for 3/4 person occupancy but would need still need to meet the regulations such as room size etc. at this current time, although i am aware this may change. Just want to double check i have read this correctly? I also know some areas may require an 'additional HMO licence' but i am unsure as what is actually meant by this...
Now, i may be wrong but i am under the impression that to have a mortgage for a 3/4 bed property which i intend to let as HMO i would need a mortgage to cater for this, i am just unsure if this would be feasible since i will not own a property after the completion of this sale. I understand one of the entry points is to have experience of letting which i do have 10yrs through an estate agent but not sure if this is meant through providing proof from previous lenders which i do not have? or if the fact that i do not own other properties would also be an issue.
And lastly, i have also been reading that some people advise to buy under a limited company and some advise not to depending on your circumstance. If i plan to expand my portfolio again in the future would it be wise to act now and buy through a company, because if i do expand and do it later i would have to pay the capital gains and whatever fees that will be accumulated which in turn would cancel out any profit made in the meantime? with my current salary and potential rental income there is a chance i could be pushed over the 50k Gross, this is if i can maximize the rental income from at least 2 properties... I do intend on using a management company to run things for me, as i do understand running a BTL is different from a HMO.
Sorry if i'm asking questions that may have already been answered, with all that I've read i'm just trying to make myself 100% clear on the situation. You advice would be very much appreciated!
Lots to cover in there - just to pick out a couple of them....
Some parts of Birmingham have an A4 direction.
Some other parts of Brum are saturated with HMOs so pick area carefully.
DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.
Thanks for the advice!
'I am currently in the process of selling my 2 bed flat in Cornwall which i do not have a mortgage on, i have been letting this property for the last 10yrs and have just broken even...'
SORRY TO BE NEGATIVE BUT IF YOU CANT MAKE MONEY FROM AN UNMORTGAGED RENTAL, THEN I THINK YOU REALLY SHOULD TRY SOMETHING ELSE!?
Hi Joe Bloggs,
I have been making money from the property, as i said i let it out for a long period. But the property was joint ownership that is the reason we sold it as complications arised which i would rather not delve into. Sorry if this was not made clear. And when i meant broken even i mean the sale of the property not the income i achieved monthly.
HMO is an investment which takes a lot of running
I would really give this a great deal of thought
The regulations are tougher in this sector than the rest of the BTL world
I personally stick with bog standered 3 bed houses with a 8% yield
and its not the work your going to have with an HMO
Best of luck
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
Thank you for the advice, i appreciate HMO do take a lot of work both setting up and maintaining. And i would eventually like to move more permanent into doing it full time, i need to get myself in the right financial situation where i would not need to rely so much in on my job.I am a Spatial designer so project managing and dealing with contractors is something i already do on a day to day basis. I am hoping with the experience i have it will give me a better advantage and handling a HMO.That's why i understand the importance of doing my due diligence, no question is the wrong question so to speak.I have family who already run a massive property development and rental in another country, but as the laws and regulations etc are different here its hard to get advice from them as they work to completely different standards.
It might be a consideration to buy properties that would suit being converted to HMO's later on (subject to lender approval etc) initially just rent them to families. It would also give you more experience at being a landlord with multiple properties, as it stands you are talking about going from having one rental property to having multiple HMO properties. Which seems like a big leap to me, there are a lot of extra things to consider with an HMO too.
I'm starting to think that's the best course of action, thanks again i appreciate it!
I think research is really really important especially if you are new to HMO. Unlike residential lettings, there is a lot more governance around HMO and you definitely need to be on top of it. Whilst there might be more return on investment; there is also more of your investment (in time) required for HMOs.
Normally there is a mortgage out there to suit all types of landlords so I don't think you'll have an issue getting a mortgage. It's the rate you pay that might vary depending on your circumstances.
My personal feedback would be:
- Speak to an accountant to see if the HMO model is viable for you.
- Definitely research into HMO for Birmingham especially if the property is in an Article 4 area. (if you wish to proceed, you may want to purchase on that is already an HMO as its more likely that you'll be granted one - at least that's the case for my city). If you buy in an Article 4 area then even 3/4 people will need to go through the councils HMO registration process.
- Speak to a good mortgage broker once you've researched the above. Even if you're not getting a mortgage, most charge fees only if you proceed but will be able to get initial advice for free. Sarang - 07878 929733 is a broker I use.
- Also think about Stamp Duty. There is a 3% surcharge for additional property. So whilst you first purchase might be an HMO, when you come to buy your own home in future you might have to pay the additional duty on your own home. So think about your long term goals (3-5yrs)
Hopefully this has helped.
Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences.
I agree with you and I would add one more thing
keep one eye on the council tax issue they could bring in council tax for every bedroom