Buying a tenanted HMO

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    Buying a tenanted HMO

    Hi All,

    Am new to HMO and my offer has been accepted on a HMO licensed property (7 rooms just outside London).

    I originally asked the seller for a vacant property but due to the delays in eviction (according to him due to covid he cannot commit to a date when the property will be vacant) he has refused to sell it vacant, I insisted but didn't work, so its either take it or leave it.

    Am considering to buy with tenants. The price is market value so no discount, I don't need a mortgage.

    He has send the agreements and deposit protection certs to my conveyancer. The Agreement shows they are all on AST's however when I viewed the property I also managed to speak to one of the tenant and he said he's been there for around 9 years.

    Currently all the rooms are rented out (10 adults) and have confirmed with the council that the HMO is valid.

    Now query is, how can I guarantee that I can serve them section 21 in the future? I can ask him about serving the GC, EPC etc but cannot take his word for it.

    My conveyancer has quoted me £150 + vat per hour to have the agreement looked at by their lettings 'expert' team.

    Would appreciate expert opinions, Thanks.

    #2
    I'd be tempted to walk away.
    If the seller can't evict the tenants there's probably a reason.

    There would be a big delay for vacant possession, because the minimum notice would be six months and then it might take a while to go through the courts if the tenants wouldn't leave, but most tenants would leave during the notice period, because the HMO market is like that.

    There's no way of putting yourself into a situation where you can guarantee that s21 notices would be 100% guaranteed valid, lettings expert team or not.

    Some tenants take a landlord's notice as a reason for not paying rent, so if there's any lost rent, you'd want it to be the seller's loss, not yours.

    Any notice served by the seller would still be valid when the sale happened, so you have to wonder why they didn't serve the tenants notice when they decided to sell. That's a red flag to me.

    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Agree with the above, sounds like you could be buying a problem there.

      If it is market value then you will easily find another will no complications.
      James Lindsey

      Liverpool

      Comment


        #4
        Originally posted by jpkeates View Post
        If the seller can't evict the tenants there's probably a reason.
        You can see the sellers point, the reason is Covid.

        He isn't saying that he can't evict, he's simply saying that due to the Covid rules, and the new HCEO legislation out today, there is no chance of evicting anybody in the near future, let alone 10 HMO tenants at once.

        TBH I don't think that anyone who isn't already aware of that should be considering buying an HMO.

        Considering the rest of the post, that the council say licensing etc. is up to date, and the fact that at least one of the tenants has been there for 9 years, it seems as if the HMO has been/is being properly run and so it may be a good investment as it is with the sitting tenants.
        Think about it:
        Instant rental income (assuming the tenants are paying rent), all 10 rooms already rented out so no new tenants to find, already registered/licenced, it sounds as if the property has been maintained so there shouldn't be any big update/refurbishment costs.

        ikki, have you done any landlord training?

        I ask because your comment about
        The Agreement shows they are all on AST's however when I viewed the property I also managed to speak to one of the tenant and he said he's been there for around 9 years.
        suggests that you probably haven't if you don't know that an AST can be renewed so someone being there 9 years on renewing ASTs is no problem, in fact it's probably a good sign that it's a decent well maintained property or they would have left long ago for somewhere better.

        Is there a partticular reason why you want a 7 room HMO with vacant possession? (Maybe you have 7 friends that you want to move in?).

        I think I'd be wary of purchasing a vacant HMO, I'd be asking why it's vacant ie. what's wrong with it that nobody is living there.

        Comment


          #5
          Selling a HMO with 7 letting rooms is a tricky balancing act; if you empty the property of its tenants you have an asset with no income. If the seller empties the property of its tenants and the buyer pulls out at the last minute then he will be again left with no income. A vacant HMO will be less valuable on the market and open to the question as to why it is not let out. Also you have to consider advertising and viewing in these times and whether it will be easy to re-let once you have purchased it. I would be asking why the current owner is selling and I imagine that 7-10 years in the HMO business is more than enough for most people. The business may be viable in its current format which is for you to decide.

          The answer to your original question re section 21 etc is that you must gather a level of evidence from the seller that a court would require. If the property manager has shown an EPC certificate ,you need a signature to show that it has been seen or has email evidence etc. I don't think this aspect can be covered 100% and you will need to take a view. HMO investments command a higher than average return because there are issues that occur more frequently with this type of investment .

          Comment


            #6
            First of all thanks to everyone for responding.

            Originally posted by jpkeates View Post

            Any notice served by the seller would still be valid when the sale happened, so you have to wonder why they didn't serve the tenants notice when they decided to sell. That's a red flag to me.
            The seller only wants to serve a notice post Exchange, point been, incase I change my mind then he could potentially be left with vacant rooms!

            Comment


              #7
              nukecad,

              Thanks for enlightening me about the new rules since yesterday and also about the periodic AST renewals.

              No I haven't done any training.

              But I believe one of the reason the tenant is there for such long is coz the rent is 25% below market (couple probably in their 50's) for a double room. Another tenant lives with kids in other room for 20% less.

              Unfortunately the property doesn't looks like its been well maintained at all. But my offer reflects thats.

              Probably from seller's point, its more of if I want to do this work I'd need to vacate some/all rooms (so will lose income) and then spend on upgrading on top. I'd rather accept 20% less and leave them to their 'standards', works for both, tenant pays less, landlord does minimum maintenance.

              For me vacant property is initially ok, but a tenant with incorrect docs where no section 21 applies is a no-no.

              Comment


                #8
                Originally posted by ikki View Post
                The seller only wants to serve a notice post Exchange, point been, incase I change my mind then he could potentially be left with vacant rooms
                That's a reasonable approach.

                You wanted a vacant property, though and you're not getting it.

                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                Comment


                  #9
                  Originally posted by AlexR View Post
                  Selling a HMO with 7 letting rooms is a tricky balancing act;...
                  - Makes sense.


                  Am going to most likely engage with a legal team to go through the docs and give their opinion. But ultimately I think I'll have to weigh my risks.

                  I've got the agreement and deposit docs, additionally I've asked for:
                  1) acknowledgement from tenants to confirm they have received the EPC/Gas certs.
                  2) bank statement for last 6 months showing the rents been paid from each room
                  3) proof that the Identity documents of all tenants have been verified

                  Experts - Is there anything else I'd need ?

                  Comment


                    #10
                    Originally posted by jpkeates View Post
                    That's a reasonable approach.

                    You wanted a vacant property, though and you're not getting it.
                    Yes am not but tenants is also ok as long as I can serve them section 21 in the near future post covid restrictions.

                    Comment


                      #11
                      Originally posted by ikki View Post
                      Yes am not but tenants is also ok as long as I can serve them section 21 in the near future post covid restrictions.
                      Why would you want to buy a tenanted property and then serve the tenants notice?

                      The problem is that, fundamentally, you would be reliant on things having been done in the past that you can't know for sure were done. So any notice that the tenant's weren't happy to co-operate with (and with below market rents that's more likely to be the case) could take a very long time to make stick.


                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        Originally posted by ikki View Post
                        Thanks for enlightening me about the new rules since yesterday and also about the periodic AST renewals.

                        No I haven't done any training.
                        In that case, espicially your not knowing how ASTs work, then I would strongly suggest that the HMO market is not a place where you should be going.

                        You can get into enough trouble, both legally and financially, having just one tenancy if/when you are unsure of the rules and regulations.
                        And you do seem very unsure on even the basics of being a landlord.

                        Trying to start with an HMO of seven tenancies at once will multiply the potential for trouble you could get into by about 50 times.

                        HMOs are for experienced landlords who already have a good knowledge of what they are doing and of tenancy law.

                        I'm intrigued as to why you are considering taking on a HMO, do you currently have any tenancies?

                        Comment


                          #13
                          Originally posted by jpkeates View Post
                          Why would you want to buy a tenanted property and then serve the tenants notice?
                          As I said not immediately, it's not the main house so looking in the future in case it needs to be become the main.

                          Comment


                            #14
                            Originally posted by nukecad View Post
                            In that case, espicially your not knowing how ASTs work, then I would strongly suggest that the HMO market is not a place where you should be going...
                            I do have experience with single tenancy. But isn't this forum exactly to assist new comers who aren't up-to date like the experts here.

                            Anyway here's my original query which got lost...:

                            I've got the agreement and deposit docs, additionally I've asked for:
                            1) acknowledgement from tenants to confirm they have received the EPC/Gas certs.
                            2) bank statement for last 6 months showing the rents been paid from each room
                            3) proof that the Identity documents of all tenants have been verified

                            Experts - Is there anything else I'd need ?
                            Thanks

                            Comment


                              #15
                              Have a look at this: https://www.vestaproperty.com/blog/1...anted-property

                              Comment

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