HMO Management businesses, also known as rent-to-rent businesses, and subletting businesses, have become increasingly popular in recent years, in particular due to the changing shape of the Private Rented Sector in the UK. In simple terms, more and more tenants require the flexibility to rent a smaller, less costly property, without being tied to a long-term tenancy with another party, be that a family member, partner of friend.
In this model, an HMO Management business will rent a property directly from a homeowner or landlord, then sublet individual rooms to tenants. This business model can be beneficial to both the rent-to-rent company and the homeowner, but it is important to understand how it works and the potential risks involved.
First, let's look at how business works. Typically, the company will identify properties that are available to let, either through direct outreach to homeowners or by searching online property listings. Once a property has been identified, the company will negotiate an agreement with the homeowner, usually for a fixed term of one to five years. This lease will outline the rental price that the company will pay to the homeowner.
Once the lease is in place, the company will sublet the individual rooms to tenants, either through traditional rental channels like online listings or by marketing directly to potential and previous tenants. The company will charge the tenants a higher rental rate than what they are paying to the homeowner, with the difference between the two rates serving as the company's profit. Depending on the specifics of the lease agreement, the company may also be responsible for managing the property and handling maintenance.
Now that we understand how HMO Management businesses work, let's take a look at some of the potential benefits and risks for homeowners who choose to work with an HMO Management company.
1. Steady income: For homeowners who have experienced difficulties in letting their property in the past, of those looking for a simple single point of contact, an HMO Management business is very user-friendly option.
2. No property management responsibilities: When working with an HMO Management company, the homeowner does not have to worry about managing the property, finding tenants, or handling maintenance and repairs. These responsibilities are taken on by the company.
3. Reduced costs: As an HMO Management company will manage the day to day running of the property, there is little requirement to involve a lettings agent or property management company,
4. Flexible lease terms: HMO Management companies typically offer lease terms of one to five years, which can be more flexible than traditional rental agreements.
1. Legal and regulatory issues: Depending on the location, there may be legal and regulatory issues with renting out a property to a subletting business. It is important to ensure the HMO Management company is well versed in correct practices.
2. Lower rental income: HMO Management companies typically pay slightly below market rate for a property, to ensure the commercial model works.
3. Property damage: When renting a property to an HMO Management company, the homeowner is entrusting their property to a third party. There is a risk that the tenants may cause damage to the property, which could be costly for the homeowner to repair, although it should always stipulate in any lease agreement that the property must be returned in the same condition it was received, save for wear and tear.
4. Lack of control: When leasing a property to an HMO Management company, the homeowner gives up a significant amount of control over the property. The homeowner will not be able to choose the end users or have as much say in how the property is managed.
HMO Management businesses can provide a service to homeowners by offering a reliable source of rental income and taking on property management responsibilities. However, homeowners should carefully weigh the potential risks and benefits before entering into a lease agreement, and should be sure to thoroughly research the legal and regulatory requirements in their area.