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.
Benefits:
1. Flexibility: HMO Management businesses often offer shorter lease terms than traditional landlords, which can be beneficial for tenants who need more flexibility in their living arrangements.
2. Access to more properties: HMO Management businesses may have access to a wider range of properties than traditional landlords, which can give tenants more options to choose from when searching for a rental.
3. Lower costs: The nature of the business means that HMO Management businesses are able to provide more affordable housing to tenants.
4. Property management: Depending on the agreement, the HMO Management businesses may be responsible for managing the property, handling maintenance and repairs, and collecting rent from the tenants, which can be convenient for tenants.
Risks:
1. Lack of control: As the accommodation is shared with other tenants, as a tenant you will have no control over who the other tenants in the building will be.
2. Shared facilities: Tenants will be required to share kitchen facilities and depending on the property, sometimes bathrooms.
3. Potential for eviction: If the HMO Management businesses is unable to pay the rent to the homeowner, the homeowner may evict the tenants, even if the tenants have been paying their rent on time.
In conclusion
HMO Management businesses can provide a service to tenants by offering more flexibility, access to a wider range of properties and a reduced monthly cost. However, tenants should carefully weigh the potential risks and benefits before entering into a lease agreement, and should be sure to thoroughly research the However, homeowners should carefully weigh the potential risks and benefits before entering into a lease agreement, and should be sure to thoroughly research the HMO Management businesses before signing a tenancy agreement.