Are you looking for a way to maximise your rental yield? If so, room lets could be just what you are looking for. With the right property there is potential to boost your rental income by upwards of a third. With the higher reward, however, there also comes a higher risk. Keep reading to find out if room lets is a good proposition for you, and how our proactive approach can manage the risks to keep them as low as possible.
Our room let strategy targets an area of rapidly increasing demand from young professionals who are unable to purchase a property and who are looking to live in a type and style of property that they would not be able to afford to rent on their own. Room lets are becoming a lifestyle choice for young professionals and these people are not looking for the stereotypical bedsit-style of accommodation that you may associate with this kind of let.
First things first – room lets are not for everyone. There are a number of important factors that you will need to take into account to know if your property (or the property you are looking to purchase) will be right. In many cases you will need to obtain specific permissions to let the property as individual rooms and also make sure the property meets minimum standards of safety, fitness and legal compliance. This means there will likely be an upfront cost to you in preparing the property, so you will need to budget accordingly for this.
When looking at room let potential the most obvious consideration will be how many individual rooms can be let in the property – the more rooms that are tenanted the more rental income there will be. Remember also that the rent will be inclusive of things like utility bills, council tax and any other services or things provided to the tenants with the tenancy, which you will still need to pay for.
The main things to take into account are:
- Room Sizes
Rooms must be a minimum of 6.5m2 for a single tenant or 10m2 for 2 tenants.
- Kitchen Size
This will also help to determine the maximum number of people you can let to:
- 5m2 = 1-3 people
- 6m2 = 4 people
- 7m2 = 5 people
- 9m2 = 6 people
- 11m2 = 7 – 10 people
- Sanitary Facilities
This is also a main ‘limiter’ when assessing the maximum number of occupiers:
- 1 – 4 people = 1 bathroom & W.C (may be combined)
- 5 people = 1 bathroom & 2 W.Cs
- 6 – 10 people = 2 bathrooms and 2 W.Cs
Where possible to install, local authorities may also require wash handbasins to be added to sleeping rooms if the property houses five or more people.
The number of rooms and maximum number of people are the main determining factors in assessing the potential rental income, but these are not the only factors to take into account:
All of these elements may limit the suitability of the property – always keep in mind that to make this work, all rooms need to be occupied to maximise your income.
If the property ticks all the right boxes you are halfway there, but there are still other consents and permissions that you will need to have before proceeding:
Mortgage Lender Consent
If the property is subject to a mortgage you will need the lender’s permission to use the property for room lets. This is more involved than regular consent to let, so there may not be as many lenders willing to allow this. Don’t panic though, we are here to help – click here – and one of our mortgage specialists will come back to you.
As with mortgages, your property insurer will need to be happy to cover the property for this style of letting also.
If the property is leasehold, you will need permission from the freeholder or their agent to sub-let the property – also, the Head Lease must be provided to the tenants so that they can be bound by it also.
This is perhaps the main area to consider, as the local authority (council) will have specific requirements relating to Houses in Multiple Occupation (HMOs). The following is a guide to give an overview of what to be aware of; you should speak to the relevant local authority to make sure you are able to comply with their specific requirements.
Mandatory HMO Licensing
This will apply if the property meets specific criteria – this is usually that the property being let has three or more storeys and there will be five or more occupiers forming two or more households (unrelated parties). HMO licences are valid for up to five years and the costs vary. The licence will set specific criteria that must be met to allow you to let the property as an HMO. For example, fire safety requirements, maximum number of occupiers etc.. Failure to comply with HMO regulations carries a very severe penalty of up to £20,000. Mandatory HMO licencing was introduced in the 2004 Housing Act and applies to all local authorities. A licence must be obtained before you can let a property as an HMO, if it meets the above criteria.
Local authorities have the power also to introduce additional controls to areas with a need to regulate the quality or amount of rental property, usually to improve accommodation standards or reduce anti-social behaviour. This often is applied to specific roads or small areas and gives the local authority the power to vary the mandatory licencing requirements – for example, to remove the three-storey requirement for a property needing a licence. You should check to see if your property, or properties you are looking to purchase, fall into these areas as you will need to comply with any licensing requirements.
This is something that many local authorities are introducing as a way to help to regulate rental properties in their areas. They have the power to introduce selective licensing in up to 20% of their area or with central government approval if a larger area is to be covered. Selective licencing requires any landlord with property in the designated area to be granted a licence to let their property. This is irrespective of the number or type of occupiers or property size. As with other forms of licensing there is a cost for a licence, typically between £300 - £1000, and the licence is granted for up to five years.
C4 Planning Permission
C4 planning is planning consent to let a property to sharers, C3 use being permission to let to families. In many places, C4 usage is an automatic right given under ‘permitted development’. However, some local authorities have removed this automatic right, meaning permission must be applied for and granted before you can let a property to sharers or as an HMO. You should be aware that you can lose C4 permission if you rent to a family and you may not be able to get it back without reapplying where restrictions exist.
Preparing The Property
Once you have established the consents required and started the process of obtaining them you can begin to focus on getting the property ready to let. Where a property is subject to mandatory licensing requirements the local authority will tell you exactly what will need to be done to make the property fully compliant. However, where a licence isn’t required, the property does still need to meet the fitness standards that apply to licensable HMOs. If you are in any doubt what will need to be done, you should consult with the relevant local authority. We base our room let requirements on the typical requirements of a licenced HMO – the following points should be addressed:
- Fire Safety: Specific guidance is provided by Lacors
- Smoke Alarms & CO Alarms – fitted and working
- Furniture Safety Regulations – soft furnishings must meet with fire safety requirements
- Means of escape
- Locks & Numbers on Room Doors
- Gas Safety: Property inspected, certified and fully compliant
- Electrical Safety: Property inspected, certified and fully compliant
- Adequate Heating: Each room must reach a minimum of 21 degrees centigrade and have a means to control the heat
- Adequate Rubbish Disposal Facilities
- Adequate Kitchen Facilities: Sinks must have a drainer, appliances must be safe and in good working order and sufficient relative to the number of occupiers
- Notice Board: To display relevant information to the tenants, such as the contact details of the HMO manager
- Communal Area Cleaning & Maintenance including gardens: It remains the landlord’s responsibility to ensure these areas are looked after and free from hazards
- Door Bells & Post Boxes: So that each room has a secure place for post and a doorbell to alert them to any visitors
- TV, Internet & Telephone Connectivity: We recommend providing TV points in each room and broadband to the property. Keeping in control of this is important and broadband is one of the ‘must have’ points for all professional tenants
Not all of the above are a ‘legal’ requirement for letting an HMO, but they form part of our best practice advice that will help to minimise issues and help to attract the right type of tenant in the first place.
If you are still reading at this point then you will understand that there is a lot to consider to get this right – that’s really where we can help – so please contact us and we will be happy to run through our room let strategy in more detail with you.
We mentioned previously that room lets can be a higher risk than a traditional style tenancy. The main things to allow for here are:
- Extra wear & tear to communal areas, fixtures & fittings
- Risk that occupiers don’t get on with each other
- Damage in communal areas may not be attributable to a specific tenant
You should keep these factors in mind and allocate funds from the higher rental income to offset these risks. We recommend, without delay, building up a sinking fund big enough to cover any work required. If you proactively keep the communal parts of the property looking at their best, the tenants are more likely to take good care of the property as a whole – this is why we advise regular cleaning of the communal areas and maintenance of the gardens.
We are happy to manage these things for you as part of our managed room lets service. Along with the above we would also:
- Make an inventory & schedule of condition for the room and the communal areas for each tenancy
- Protect the deposits for each room in a tenancy deposit scheme
- Carry out routine visits to the property every 3 months
- Deal with tenancy renewals
- Deal with maintenance issues
- Collect the rent
- Deal with the check-out, deposit return and end-of-tenancy process
Contact us now to find out more about our managed room lets service