How to grow your agency's revenue with HMOs [blog + podcast]

"Developers have got into HMOs because they realise it's a way to take a property and maximise the revenue from it, really squeeze the juice out of the investment," says Neil Baldock, Director at Chelmsford-based letting agency, Charles David Casson. "There are more people coming into the market now, but you've got a lot less competition in the space because there are a lot of agents that just haven't caught up with the times."

HMO management is one area which has the potential to open doors to growth for letting agents, at a time of low stock in other areas of the market. "The type of HMO client we meet is generally a more professional landlord, so it probably won't be the first property they've invested in," says Neil.

"If we're dealing with people that are investing in HMOs, they're likely to have a portfolio behind them. It also opens up conversations with developers and just a different type of client that actually can then lead to other opportunities."

Although this part of the market may have already been cornered in larger cities, says Neil, for those in smaller towns, he has some top tips to help your agency dip its toes into the potentially lucrative HMO market. 

Dedicate the right resources to the challenge

"If you set up a department for it and dedicate yourself to that management world, then it's definitely lucrative, because you are able to charge more money," says Neil.

"It's standard across the HMO world to charge 15%, whereas the standard is around eight to 10% for single lets. You need to really go into HMO management and learn all about it, because if it's systemised and you've got the technology in place, then it's not actually too difficult." 

Put yourself into your customer's shoes

"You almost need to have an investor's mindset yourself," says Neil. "It's not just being the letting agent; you need to understand the property investment side of it, why people are investing in these properties, and what they want to get out of it, and how to keep the cost under control and everything like that."

Market it well to make the most of the opportunity

"In most of the smaller towns, you'll be one of the few, if not the only, agent looking to do it," says Neil. "It's fairly easy to put that on your web page and actually then start showing up when people are Googling HMO management. It's well worth joining HMO Facebook groups, getting yourself known, answering questions, learning about what people are talking about. Attend landlord networking events, get involved in online forums for property investors, and start telling people that you offer it."

Understand how to manage multiple occupants

"We give them a set of house rules and then they have to abide by those," says Neil. "We're taking five, six, seven people, putting them all in one house together, asking them to share bathrooms and kitchens and be respectful of each other, and that is a dynamic that has to be managed because they don't all know each other."

Do your research into the legislative requirements

"An HMO is three or more people from more than one household that share facilities, but large HMOs, with five or more people, need to be licensed," says Neil. "You've also got to get planning permission if you want to have seven or more people living there. It's not about the rooms, it's about the amount of people. And you have to get planning permission to change the use class of the property, from a residential property into something that they call a 'Sui Generis' HMO."

Some areas may have restrictions on HMO developments - something you'll need to research for your area. "Some councils will introduce Article Four if the town or city is becoming overrun or overdeveloped with HMOs," says Neil. "That basically means you can't build any more. At the moment, unless you go to seven or more people, you can change a property to an HMO under permitted development. But if you've got Article Four in the area, then you would need to seek planning permission anyway."