The True Cost of a Cheap Property: Avoiding Liabilities in Your HMO Portfolio

Any property owner will know the allure of a bargain property, but these ‘deals’ can be one of the biggest traps in investment. There’s a critical error that lies in merging a low purchase price with genuine value, but the true cost of a property goes further than this. Every pound spent to transform the property into a reliable and fully compliant asset is one that needs to be counted.

Investors who don’t carefully assess the condition and legal complexities of a property, no matter its listing price, guarantee themselves long-term liability issues that will destroy their return on investment, often wiping out years of carefully accumulated profits in a single, catastrophic repair bill or fine.

The hidden liabilities that bankrupt HMOs

The gap between your purchase price and the real cost of a potential HMO lies in several possible liabilities, each capable of rendering an apparently profitable investment wholly unviable.

Structural problems

The first, and arguably most important, defect to check for is structural issues – a common reason for a property being listed below the market value. Damp penetration, subsidence or dry rot are rarely superficial issues that can be addressed with minor remedial work. These problems tend to indicate system failures that require in-depth intervention from experts.

Poor structural condition doesn’t just mean an increase in construction costs; it also fundamentally limits your design options. Load-bearing walls that can’t support additional floors or roofing that’s inadequate for conversions, and foundation problems that prevent excavation work all put your HMO plans on hold either temporarily or indefinitely. This means your bargain property becomes a stranded asset, incapable of driving the rental yield you need to justify the purchase.

Boundary disputes

Boundary and neighbour disputes are another category of hidden liabilities that can halt your HMO project. In properties where the previous owners have encroached onto neighbouring land or built structures without proper party wall agreements in place, new owners could be exposed to disputes, injunctions, and even potential enforcement requiring the removal of the structure. Some boundary disputes prove entirely inflexible, rendering the property permanently undevelopable for its intended HMO use.

When it comes to planning work that touches or affects the boundary with a neighbouring property, party wall agreements become essential to legally protect both parties’ interests. Some of the works covered under the act include building on or at the boundary of a property, working on an existing party wall or party structure, and excavating below or near to the foundation level of an adjoining building. For a detailed explanation, refer to this guide by chartered building surveyors Silk Sharples Jennings.

Regulatory non-compliance

A cheaper property might have been subjected to works carried out without the proper permissions or adherence to the necessary Building Regulations, whether it’s electrical installations without the certifications or fire safety measures installed incorrectly. This creates an immediate barrier to HMO licensing. Local authorities won’t issue an HMO licence for a property that fails to meet current safety standards, regardless of when the defective work was completed or who by.

A poor understanding of HMO licensing and planning could also be your downfall if you invest in the wrong type of property. While a building might look like it’s big enough to convert into a multi-tenant property, you could find that the reality is very different. If you have a property that houses five or more unrelated tenants, a license is mandatory, and for this you’ll need to apply to your local council.

What’s more, the rooms need to be a certain size, but these guidelines vary by council so it’s important to do your research beforehand otherwise you could find that the conversions you had in mind aren’t viable.

Professional due diligence

Any property purchase requires due diligence, but it’s a fundamentally different approach when you’re purchasing a property intended as an HMO. The condition audit serves as your profit protection, providing a detailed, independent assessment of every aspect of the property’s condition that might impact development feasibility and ongoing viability.

This in-depth assessment may even require specialist input for structural, electrical, and drainage systems, as well as a comprehensive review of planning history, Building Control records, verification of boundary positions, and party wall compliance. The cost of a professional assessment is a fraction of the potential liability it could find. Set against six-figure remediation costs or a permanently compromised investment viability, this expense is arguably the most profitable money an investor can spend.

An HMO investment can offer higher rental yields and a great way to grow your portfolio, but they also come with stricter regulations and management needs. While a cheap property might look like an easy way to boost profits quickly, the reality is that there are hidden costs that could derail your plans. Due diligence and extra checks are necessary when the price looks too good to be true, to avoid any unforeseen risks or expenses.

Safeguard Your HMO Investment

• Avoid Hidden HMO Liabilities: A cheap property often masks significant costs (structural defects, regulatory non-compliance, boundary disputes) that can destroy your profit.
• Prioritise Professional Due Diligence: The cost of an in-depth, specialist assessment is negligible compared to six-figure remediation costs or fines.
• Compliance is Non-Negotiable: Regulatory non-compliance (Building Regulations, HMO licensing) is an immediate barrier to achieving a rental yield.
• Actionable Next Step: Don’t let unforeseen HMO liabilities compromise your portfolio.

At HMO Architects, we’re on hand to help so book your property strategy call today to discuss your project.