HOW TO INVEST IN HMO'S
The key steps to investing in a House of Multiple Occupancy
How to invest in HMO's
The key steps to investing in a House of Multiple Occupancy

Are you looking to get into the HMO market and finding potential property purchases with great rental yields? That’s something we can help with.
Here at The Property Sourcing Company, we can source properties across the country, making sure you have access to the best opportunities, no matter your preferred location. With extensive experience in property investment, our team understands the ins and outs of HMO regulations, licensing and profitability.
Houses in Multiple Occupation (HMOs) can be amazing investment opportunities for landlords, but careful planning and execution is essential. In this guide we will explore everything you need to know in a step-by-step process, helping you navigate your journey as an HMO investor.
1. Licensing, planning & legal considerations
Before committing to a HMO investment, understanding the legal requirements are vital. HMOs are subject to specific regulations designed to protect tenants and make sure properties are managed responsibly. Failing to comply can lead to significant penalties, so this step forms the foundation of your journey.
Licensing
HMOs will require a license from the local council. The type of license depends on the size and occupancy of the property:
- Mandatory HMO licensing: Required for properties with five or more tenants forming two or more households.
- Additional licensing: Some councils extend licensing to smaller HMOs.
- Selective licensing: In certain areas, landlords need a license for any rental property, not just HMOs.
The application process involves demonstrating that the property meets safety standards, providing an acceptable tenancy agreement and proving that you are a fit and property landlord.
Planning classifications
Understanding planning classifications is important to knowing whether your property can legally operate as an HMO:
- Class C3 (Residential): Family homes or single households.
- Class C4 (Small HMOs): Properties with 3 to 6 unrelated tenants sharing facilities.
- Sui Generis: Larger HMOs with 7 or more tenants require this unique classification.
If your property doesn’t already fall into Class C4 or Sui Generis, you may need to apply for a change of use.
Article 4 directions
Some local councils impose Article 4 directions, which remove permitted development rights. This means you cannot convert a property to an HMO without planning permission, even for small HMOs (Class C4). Article 4 usually applies in areas with high concentrations of HMOs, to control their impact on the community.
There are some ‘hotspots’ for Article 4 directions, which usually sit in university towns like Leeds, Manchester and Birmingham, due to the high student populations needing to balance against full time residents.
Conversion requirements
Converting a house into an HMO involves more than just adding locks to bedroom doors. You’ll need to meet several standards to make sure the property is safe, functional and complaint:
Fire safety is one of the most critical aspects of an HMO conversion. Requirements typically include:
- Hardwired smoke alarms in all bedrooms and communal areas.
- Heat detectors in kitchens.
- Fire doors with self-closing mechanisms to protect escape routes.
Your property must meet minimum room size requirements to be used as an HMO. These include:
- Single rooms: At least 6.51m².
- Double rooms: At least 10.22m².
- Adequate communal space for tenants, such as kitchens, living areas, and bathrooms.
Each HMO must provide sufficient facilities for the number of tenants, including:
- Bathrooms and toilets.
- Cooking facilities with appropriate ventilation.
- Adequate heating and insulation.
Landlords are responsible for ensuring the property has:
- A reliable electricity and gas supply.
- Proper waste disposal arrangements.
- Energy efficiency measures, such as double-glazed windows or energy-saving appliances.
2. Regional & local HMO rules
When investing in an HMO, understanding regional and local regulations is also very important. Each council has its own set of rules and policies for HMOs. These rules influence licensing requirements, planning restrictions, and even the demand for HMO properties in your chosen area.
While mandatory licensing applies to larger HMOs across the UK, many councils operate additional licensing schemes for smaller HMOs. These schemes are designed to address local housing issues and ensure landlords meet specific standards for safety, cleanliness and tenant welfare.
For example, a council may require a license for properties with three or more tenants, even if they don’t meet the criteria for mandatory licensing.
One of the most common areas for local licensing schemes differing from the rest of the UK, is in and around the West Midlands. For instance, Birmingham City council introduced a selective licensing scheme on 5th June 2023, mandating that all privately rented properties in designated wards obtain a licence, regardless of occupancy numbers.
3. Insurance and management
Managing an HMO involves more complexities than a standard Buy To Let property. From obtaining specialised insurance to ensuring efficient day to day management, this stage is vital for safeguarding your investment and maintaining tenant satisfaction.
HMO insurance: Why it’s essential
Standard landlord insurance policies are often insufficient for HMOs due to the unique risks associated with shared housing. HMO specific insurance provides tailored coverage to protect your property and tenants. Here are the key features of HMO insurance:
- Property damage: Covers damage caused by tenants, accidents, or natural disasters.
- Liability cover: Protects you if a tenant or visitor suffers an injury on your property.
- Loss of rent: Compensates for rental income lost due to an insured event, such as fire or flood.
- Accidental and malicious damage: Coverage for tenant related incidents, including intentional damage.
- Legal expenses: Covers legal fees for disputes with tenants or eviction processes.
When choosing an insurance provider, ensure the policy explicitly mentions HMO coverage, as insurers may have additional requirements for multi-occupancy properties.
Property management options
Managing an HMO involves unique challenges, such as handling multiple tenants, maintaining communal areas and ensuring compliance with legal standards. Landlords have two main options: self-management or hiring a professional property manager.
Self-managing your HMO can save costs, but it requires significant time and effort. Responsibilities include:
- Collecting rent from multiple tenants.
- Managing repairs and maintenance for communal and private areas.
- Ensuring the property complies with safety standards and licensing requirements.
- Handling tenant disputes and contracts.
Self management is ideal for experienced landlords who live locally and can respond quickly to tenant needs.
Hiring a property management company can ease the burden of HMO ownership. Services usually include:
- Tenant sourcing & vetting: Ensuring your property is filled with reliable tenants.
- Rent collection & arrears handling: Streamlining income and addressing late payments.
- Maintenance & repairs: Managing day to day upkeep and emergency fixes.
- Legal compliance: Keeping your property up to date with licensing and safety standards.
While management fees typically range from 8-15% of rental income, the peace of mind and time savings often outweigh the costs, particularly for landlords with multiple HMOs or those who live further away.
4. Understanding the profitability of HMOs
Houses in Multiple Occupation are widely regarded as one of the most profitable strategies in property investment. By renting rooms individually, landlords can achieve higher rental yields compared to traditional single let properties. However, the potential for higher incomes comes with additional costs and responsibilities that need to be carefully managed.
The key advantage of HMOs is their ability to generate significantly higher rental income as each room is rented out individually, creating multiple income streams from the same property.
For example, a 3 bedroom house converted into a 5 bedroom HMO could generate rental income from five tenants, potentially doubling or tripling the income compared to letting the property to a single family.
5. Invest in HMO's
Once you’ve gained a thorough understanding of how to invest in HMOs, the exciting part begins – you can make the leap and get started on your journey to becoming a successful HMO investor! While finding the right HMO property can be time consuming and complicated, especially if you’re new to the market, there’s an easier way to improve the process.
In England and Wales, the most efficient and hassle-free way to secure your ideal HMO property is to let us handle the sourcing for you. At The Property Sourcing Company, we specialise in finding high-potential HMO investments tailored to your goals. Whether you’re looking for a ready made HMO or a property with conversion potential, our expert team can help you find the right property.
Investing in HMOs doesn’t have to be daunting. With The Property Sourcing Company, you gain a trusted partner dedicated to simplifying your journey and helping you achieve your investment goals. Let us do the hard work so you can focus on building your property portfolio.
Want more info? Check out our HMO guides:
Invest in HMO’s

Discounted property with high yields

Transparent & honest throughout the process

We’re property experts with years of experience

Investment opportunities tailored to your requirements
Simply put, we can get you the best deal and help you achieve the highest possible yield.
We have a combined 200 years experience in the industry & know a good deal to pass to our investors when we see one. We’re part of a group of companies in which we also buy properties for well below market value, and we can pass some of these discounts on to yourself.
Why you ask? We want the investment to work for you, because we want to forge a long term relationship, so when you’re looking to expand your property portfolio you’ll come directly to us in the future.

WHY INVEST WITH US?
Simply put, we’ll get you the best possible deal. Our sister company, The Property Buying Company, have been in the property buying industry for years & we have access to all their stock which is at a price point that is ready for investors to buy and make a great return on.
No middlemen, no stress & no hassle. We make investing in property and growing your portfolio as easy as it possibly can be.




WHY INVEST WITH US?
Simply put, we’ll get you the best possible deal. Our sister company, The Property Buying Company, have been in the property buying industry for years & we have access to all their stock which is at a price point that is ready for investors to buy and make a great return on.
No middlemen, no stress & no hassle. We make investing in property and growing your portfolio as easy as it possibly can be.

