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The total cost of an HMO investment in Edinburgh

Typical HMO building
November 7, 2019 No Comments

The total cost of an HMO investment in Edinburgh


Posted by Daniel Denisiuk in Blog

How much will you have to spend on an HMO?

One of the most frequent questions from prospective landlords or property investors is: ‘How much does it cost to get an HMO licence in Edinburgh?’ And obviously, landlords and investors are not just asking about the licence fee! Edinburgh Council’s Houses of Multiple Occupancy (HMO) fee is only a small part of the overall cost of converting a regular 3 or 4 bedroom flat into a fully-fledged HMO investment property.

Edinburgh Letting Centre is an HMO specialist letting agent based in Edinburgh, Bruntsfield, and we have created a template for potential landlords to help them to obtain a rough estimate of all costs. Please remember that all costs are approximate and do not constitute a quotation: different contractors may charge different fees, some jobs are easier to do and some may turn out more expensive. Some properties may require only simple upgrades (like installing door closers), but upgrading non-compliant flats up to HMO standards will cost significantly more. 

There are three main categories of HMO related expenses: 

  • Cost of remedial works and upgrades necessary to obtain a licence.
  • Cost of safety certificates. 
  • HMO licence fee. 

Please note that any mention to licence fees relates to fees charged by the Edinburgh Council for properties based in Edinburgh, so other councils may charge different fees.
Here’s an example based on a 3 bedroom flat in Edinburgh, suitable for 3 adult tenants.

Necessary Upgrades

Flooring

All HMO properties in Edinburgh should have good quality carpets (hallway, living room, bedrooms) and vinyl flooring with thick underlay in kitchen/bathrooms to reduce noise.
There are two exceptions:

  • Ground floor flats can have hardwood flooring, as there are no neighbours living below to complain about excessive sound.
  • If occupiers (tenants or live-in landlords) sign a noise declaration form, available on Edinburgh Council website. The document states that the current flooring of the flat above is satisfactory, dampens all noise sufficiently and that the neighbours do not need the property above to be carpeted.

So, depending on your current flooring and the neighbours’ willingness to sign a noise exemption document (they actually usually do sign it), the cost varies from 0 (best case scenario) to around £3,000 (good quality carpets, vinyls and underlay, labour, removal of old flooring).

Doors

All major doors: main flat door, bedrooms, living room and kitchen need to have at least FD30 (30 minute) fire rating and intumescent strips (seals which expand in higher temperature). All major doors must self-close from any position.
Let’s assume our flat has 6 doors. Many, if not most, modern doors have at least FD30 fire rating, but very few are equipped with intumescent seals and door closers. Typical costs are: intumescent seals £50 per door, door closers £45 per door. If doors are not fireproof, there are two options: either fireproofing existing doors with a fireproof board or fireproof paint or varnish – or getting brand new FD30 doors. We recommend fireproofing wooden, traditional doors in old tenement buildings, as new, modern doors will look out of place in late 19th century buildings. New (standard) fireproof doors prices start at £55, their average cost is around £90,so let’s say £140 to supply and fit. Fireproofing traditional doors would cost around £70 per door.

Thus:
New doors: £840
Fireproofing old doors: £420
Intumescent seals: £300
Door closers: £270

Best case scenario: modern fireproof doors with integrated (and functional!) door closers, only intumescent seals needed: £300.
Worst case scenario: new doors, seals and door closers: £1410.

Thumb Turn Locks

Your tenants should be able to open any door from the inside without keys (imagine: fire at night, panic and lost keys!), so this means thumb turn locks or night latches only. Mortice locks need to be removed, disabled or replaced with thumb turn locks. 

Average cost: £60.  If you decide to install locks in all bedroom doors: additional £180.

Miscellaneous Expenses

Edinburgh HMO inspectors may ask you to install markings on the oven and hood, if the factory-made signs are overly worn. You may have to buy Emergency Exit and Fire Plan stickers for the main door. Sometimes inspectors request new grout or new silicone seals in bathrooms. Such requests vary from flat to flat. We assumed that your property is in good repair, that all windows open, close properly and can be locked; that carpets are not frayed, and the  kitchen hood works as it should. HMO inspectors will pay attention to all such details and any repairs may incur further costs.

To sum up: HMO related upgrades cost should cost between £360 and £4,590.

Safety Certificates

All private rental residential properties in Scotland, managed both by landlords and letting agents, require the following certificates

  • EPC, Energy Performance Certificate
  • EICR, Electrical Installation Condition Report
  • PAT, Portable Appliance Test
  • Gas Safety Certificates (only if there are gas appliances in the property)
  • LRA, Legionella Risk Assessment

HMO properties will also require following certificates:

  • Fire Risk Assessment
  • Fire/Smoke Alarms Test Certificate
  • Fire Fighting Equipment Test Certificate
  • Emergency Lighting Certificate (only in properties with emergency lights)
  • Sprinkler Test Certificate (only with properties with sprinklers)

EPC is included in the Home Report, so it is assumed you already have it. If you have been letting your flat, you should have all the ‘usual’ lettings safety certificates.

The typical costs are:

The EICR certificate alone is around £120, but a satisfactory EICR will require installing interlinked smoke detectors in all bedrooms, hallway and living room and a heat detector in kitchen. 6 detectors in total, £100 per detector – £600. Sometimes the main electrical board needs to be replaced – £400. Lights in bathrooms must be waterproof (IP rated) – £70 per light, supply and fit. There may be some other remedial work. So the cost of electrical works and certification starts at £720 for works done from scratch, but you may end up paying more than £,1200 for electrical upgrades. It is assumed that the wiring is in decent condition and that your property will not need any significant changes (or a complete rewire… which is costly).

Other certificates are much cheaper: PAT around £50, Gas Safety Certificate £70, Legionella Risk Assessment £60.

Fire HMO related certificates:

Fire Risk Assessment £200, Fire/Smoke Alarms Test Certificate £60, Fire Fighting Equipment Test Certificate £50, Emergency Lighting Certificate £60. Your Fire Risk Assessment will tell you if you need emergency lights. Do you have borrowed light in your hallway? If so, you will most likely not need such lights. If the fire risk assessors decides that emergency lights are necessary, the cost of installation is around £220 for a triple unit. Single or double units will be proportionally cheaper. Sprinkler Test Certificate £90 (only applies to some double upper properties with sprinklers).

To sum up: safety certificates together with related remedials will cost between £740 (properties let previously, with valid relevant usual landlord safety certificates and smoke / heat detectors in hallway, living room and kitchen) and £2,060 (properties never let before, requiring all necessary certificates, 6 smoke/heat detectors, new board etc. – but not a complete rewire). 

Edinburgh Council HMO licence fee

Finally, after doing all upgrades and obtaining necessary certificates, you are ready to complete the HMO application form, attach the floor plan and relevant safety documents and send your application to Edinburgh Council Licencing Team. Do not forget to attach a cheque for £594, as this is the initial fee for a 3 tenant HMO licence. The following year, on renewal, you will have an opportunity to apply for a 3 year licence at the same cost – so, you will not have to pay £594 every year.

So how much you will have to spend?

As you can see by now, the total cost of your HMO investment in Edinburgh varies a lot. If  your property has been let before and is up to the current rental standards, £1,640 may be enough to obtain an HMO licence. However, the worst case scenario is much less palatable. If your flat does not comply with lettings standards and requires all potential upgrades, you may end up paying £7,190 before you can rent your property to more than two unrelated tenants.  

In our experience, the most typical amount to secure an HMO licence for an average Edinburgh 3 bedroom flat requires a £3,000-£4,000 investment. Does such an expense pay off? Usually it does, as some bigger properties are very difficult to let without an HMO licence, and each additional bedroom is worth £5,000-£7,000 per year. The £3,000-£4,000  needed to spend to obtain the licence is an initial investment, not a regular annual cost – which is significantly lower.  So how much is the annual HMO related upkeep? It is mostly annual safety and fire related certificates and share of annual licence cost. For example, typical smoke alarm heads need to be replaced every 5 years – it is not an annual expenditure.

Do you think you will need help with an HMO licence?

If you are not sure you can manage getting all certificates and upgrading the flat up to HMO standards, please get in touch with us by phone 0131 662 8035 or email mail@edinburghlettingcentre.com. You can also browse our general Edinburgh HMO Guide and the description of our HMO application service. Please note we do not charge our full management landlords any additional HMO management fees (for example for an HMO set up or HMO applications). 

As a specialist HMO letting agent in Edinburgh, we have already helped multiple landlords to increase their rental income via HMO lettings. We help new HMO landlords every single month – give Edinburgh Letting Centre a call if you have any questions. Feel free to email us for an Excel spreadsheet showing all HMO related expense categories; it might help you to do your calculations.

Please note that our guide covers preparing Edinburgh properties to be HMO licenced. Although as a lettings agent we manage properties in Midlothian, West Lothian, East Lothian and Fife, we specialise in Edinburgh HMO applications and this post refers to such properties only. Other Scottish council may have slightly different licencing requirements.


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