Published: 12th May, 2025
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Are HMOs Currently Profitable?
Understanding ROI for HMO Investments
If you’re a landlord or thinking about becoming one, a house in multiple occupation (HMO) could be a sound long-term investment. But are HMOs really worth it?
In my experience, HMOs can offer better rental yields than standard buy-to-lets, and there is a demand for them. But before you commit to investing in houses in multiple occupation, there are some things you should know.
To help you make a well-rounded decision that fits with your goals, I’ll cover the pros and cons of HMO investments. I’m also going to tell you how to gauge the potential return on investment (ROI) you can expect with a HMO property.
Table of Contents
Before you invest in a HMO, you should consider the pros and cons so you can weigh up whether it’s the right investment for you. Let’s take a look.
The pros
- You’ll diversify your property portfolio and help you connect with a whole new market segment.
- HMO rentals are in demand at the moment. Investing in houses of multiple occupations will attract quality long-term tenants that will likely maximise your ROI (and make your life a little easier).
- As HMOs are made up of people from more than one household, you’ll reduce your risk of full property vacancies or voids, resulting in a potentially more stable investment.
- HMO rental yields are generally higher than their single-let counterparts which will offer you a healthy return on investment.
The cons
- Most HMO situations are subject to more red tape than single-let investments as you often have to obtain a license and fulfill additional legal requirements.
- You’ll have to meet a long list of safety regulations related to gas, electrics, and domestic appliances.
- As you’ll probably have a higher churn of tenants and more people sharing the space, you may have to spend more time and money on maintenance.
Speaking to Landlord Today about the current state of HMOs, a COHO Property Management spokesperson said:
“HMO market’s value is going to keep increasing not only because of the constant and growing demand from a variety of tenant demographics, but also because rising tenant expectations means landlords are going to improve the standard of living and thus benefit from stronger rental income.”
That means provided you understand your obligations, you’ve set aside a decent budget, and you’re willing to do the work, the pros of HMO investment outweigh the cons.
With average rental yields of between 7% and 11%, HMOs make sound long-term property investments. That said, it’s always worth remembering that the running costs of HMOs are typically higher than those of single-lets.
If you have funds set aside for general running costs, emergencies, and regular maintenance, HMOs can offer a healthy ROI.
How profitable are HMOs?
The profitability of your HMO investment will depend on factors like location, how much rent you can charge tenants, and associated costs. These costs usually include mortgage payments, utility bills, and maintenance.
To get a realistic idea of the ROI you can expect from a HMO investment, you need to calculate your potential annual rental income and compare it to your estimated monthly or annual running costs.
For example:
Monthly rental income: £1,400
Annual rental income: £1,400 x 12 = £16,800
Annual running costs (not including utility bills paid by tenants):
Mortgage: £7,200
HMO insurance: £50
Initial HMO license cost (this can vary depending on the issuing council and last five years: £500
Cleaning and maintenance fees: £1,500
Total: £7,450
Overall annual HMO income (ROI in £): £16,800 – £7,450 = £9,350
FYI: According to the Landlord’s Portal, it costs between £30,000 and £500,000 to set up a HMO. So, you should keep in mind that while your property value will likely increase, it may take some years before you make your initial outlay back from your rental income. Also, due to their specialist nature, HMO mortgage interest rates are around 1 to 1.5% higher than other more standard buy-to-let products.
Is there really a demand for HMOs?
As I mentioned, yes. According to Get Ground, HMO demand continues to grow. As the cost of living continues to rise, more people are seeking flexible and affordable housing arrangements—the kind that a HMO situation offers.
As such, HMOs are an attractive option for reliable tenants, including students, young couples, and budding professionals, particularly if you invest in a property that’s near a university or commutable to a major city.
FYI: There are currently more than 350,000 HMOs in the UK, and counting. While the overall number of licensed HMOs have dropped since 2021, this shows a healthy demand. I personally expect this number to consistently rise over the next five years.
If you’re looking for a suitable rental investment and you’re not sold on HMOs, you could consider standard buy-to-lets or even social housing investments. But do standard buy-to-lets and social housing actually make better investments?
Here’s a comparison chart that will help you decide which investment might be best for you:
| Type of investment | Average Gross Yield | Factors to consider |
|---|---|---|
| HMO | 8 to 15% | More management commitments, licensing requirements, higher tenant churn, furnishing costs, and the potential for more wear and tear. |
| Standard buy-to-let | 25 to 35% | Regular tenant management requirements, a higher potential for costly void or vacancy periods, maintenance costs, and a reliance on individual tenants. |
| Social housing | 8 to 10% | Typically, longer-term tenancies, often lower void periods, potentially less tenant management (depending on which model you choose), and partnerships with local authorities or housing associations that can be challenging to manage. |
*Sources: Landlord’s Portal | New Capital Link
As you can see, each type of property investment has its pros, cons, and considerations. While buy-to-let running costs may be lower than HMOs, rental yields are slightly lower and there’s more potential for void periods. On the flip side, while HMOs typically offer better yields and less risk of void periods, there’s more red tape to contend with ad running costs are higher.
Social housing is a viable investment option and offers the security of long-term tenants, but you may have to jump through a series of hoops if you’re in partnership with your local authority.
So, is it worth investing in houses in multiple occupations and are they profitable? On balance, I’d say, yes. Do your research, choose your investment wisely, and you stand to make a healthy profit from HMO properties. Oh, working with a property investment specialist won’t hurt, either.
At The Property Sourcing Company, we’ll find quality HMO investments that suit your investment goals. Whether you want a ready-made HMO or a property with refurb potential, our in-house specialists will help you find an ideal HMO investment.
With us, you’ll gain a trusted partner who will help you navigate every step of the process. We’ll do the hard work so you can focus on growing your property portfolio, one investment at a time.
To find the right HMO for your needs, you should set a clear budget and target locations for your search. Setting up HMO investment alerts on popular property marketplaces will streamline your search. However, you should be aware that public HMO property listings are highly competitive, driving property prices up in the process.
Working with a HMO property investment expert like us will help you connect with lesser-known or off-market opportunities that suit your exact criteria, often for a discounted price.
Absolutely, you can buy a HMO property to renovate or refurb. If you want to take on a ‘do-er-up-er’ HMO, some specialist lenders offer HMO refurbishment mortgages where you can borrow enough to secure the property and fund the renovation work itself. But, before you take on a challenging HMO renovation project, always make sure you have the funds and capacity to achieve your goals.
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