HMO Property Sourcing
The key steps to investing in a House of Multiple Occupancy
Written by: Jessica Chambers, Reviewed By: Jonny Christie
First Published: Dec 9, 2024 | Last Updated: Apr 30, 2025
HMOs are in demand right now. Studies from HMO Sales show that there are currently an estimated 362,023 HMOs in England and Wales.
As a potential landlord or property investor looking for new opportunities, HMOs could offer you an attractive return on investment (ROI)—if you know how to find the best properties for your needs.
Here at The Property Sourcing Company, we can source HMO investment opportunities nationwide. Regardless of where you’re searching, our team of experts understands the ins and outs of HMO regulations, licensing, and how to get the best ROI for your efforts.
In this guide, we’ll share everything you need to know when it comes to HMO property sourcing. We’ll also explain how The Property Sourcing Company will help you find the best HMO investment for your specific needs.
Table of Contents
A house of multiple occupancy (HMO) is a property where three or more tenants who aren’t from a shared household live together.
Typically, each HMO tenant rents a bedroom and shares amenities, including a lounge, bathroom and kitchen. Shared living is by no means a new phenomenon, but amid a cost-of-living crisis—HMO property situations are becoming an increasingly affordable way of living well without breaking the bank.
It’s clear that HMOs provide functional and affordable living situations for tenants. But what are the pros and cons of buying or running HMO investment properties? Let’s explore.
HMO investments properties: the pros
You’ll diversity your property portfolio
As a property investor, sourcing the right HMOs will expand your portfolio and give you access to a new market segment other than the usual single-let situations. That means that if the single-let property market slows down or dwindles, for instance, you’ll profit from your HMO properties.
You’ll tap into a captive market
As mentioned earlier, HMOs are in demand right now. As people seek more affordable housing, shared living is becoming increasingly popular. Invest in HMOs near commuter belts, business hubs or universities, and you’ll likely attract droves of students, young professionals or transient workers to your properties.
You’ll stand less risk of property vacancy
If a single tenant suddenly hands in their notice or leaves your property vacant, you’ll have to cover the costs until you can find a replacement tenant. As you know, this can be expensive. As several paying tenants live in HMOs, even when one moves out, the others will cover a large portion of the costs until you find a replacement.
You’ll enjoy attractive rental yields
According to the British Landlord Association, the average rental yield for HMOs is 7.5%, compared to 3.63% for single-let properties. So if you were wondering whether HMOs are profitable—the answer is yes.
Sourcing HMOs in the right regions is likely to result in healthy rental yields and a healthy return on investment (ROI) as a result.
Lendlord’s HMO Data Analysis Report shows that the region with the highest average rental yield is the North-East which is 15.4%. Also, the region with the highest average HMO rental income is South-East with a total of £46,041.
Calculating your HMO rental yield: a quick guide
If you’re weighing up your options and want to decide whether a potential property will be worth your investment, here’s a quick HMO calculation guide that will help:
The gross rental formula:
Gross Rental Yield = (Annual Rental Income / Property Value) * 100
The gross rental yield example:
You have a five-bedroom HMO property and you let each room out for £400 per month.
That means…
Your total monthly rental income is £400 x 5 = £2,000.
The annual rental income is £2,000 x 12 = £24,000.
The property value is £300,000.
You gross rental yield = (£24,000 / £300,000) * 100 = 8%
Net rental yield calculation:
When you’re calculating your net rental yield, you need to account for your annual maintenance costs.
The formula:
Net Rental Yield = ((Annual Rental Income – Annual Costs) / Property Value) * 100
The net rental yield example:
This calculation is based on an annual property income of £24,000.
Annual HMO running costs:
- Mortgage interest: £6,000
- Landlord insurance: £500
- Property management fees: £1,800
- Repairs and maintenance: £1,000
- Council tax and utilities (during void periods): £700
Total Annual Costs = £6,000 + £500 + £1,800 + £1,000 + £700 = £10,000
Property Value = £300,000
Net Rental Yield = ((£24,000 – £10,000) / £300,000) * 100 = (£14,000 / £300,000) * 100 = 4.67%
HMO investments properties: the cons
You’ll need to meet more legal requirements
HMO rentals come with more legal red tape than single-let properties. Many local councils require landlords to apply for a HMO license, and there’s typically a limit to how many they grant during a specific timeframe. Also, you’ll have to obtain an HMO license if your property has more than five bedrooms in England and Wales. If you fail to do so, you could get hit with an unlimited fine.
Another thing to be aware of here is that you’ll also have to pass a ‘fit and proper’ test to become a legally compliant HMO landlord. The process usually involves checks to confirm that you don’t have a criminal record and have never breached any landlord code of conduct regulations.
You’ll have to meet more safety requirements
By law, HMO owners must submit:
- A gas safety certificate every year
- An electrical safety certificate every five years
- Provide a safety certificate for every electrical appliances supplied with the property
If you’re a HMO landlord, you’ll also have to carry out stringent fire safety checks if your property has three or more storeys. Also, in many cases, a council representative may inspect the property to check you’ve met safety regulations, the property isn’t deemed overcrowded, and that the facilities (cooking, washing, refuse, and storage) are up to standard.
You may incur more in maintenance and refurbishment costs
With a heavier use on communal facilities and higher turnover of tenants, HMOs tend to experience more wear and tear than single-let properties. That means to maintain safe and adequate living situations for your tenants, you’ll have to refurbish your HMO properties more often. If you’re looking to invest in HMO properties, I recommend setting aside a larger annual budget (around 5 to 10% higher than your single-ley investments) to ensure you can cover potential costs comfortably.
As long as you’re prepared, tackling legal requirements, safety regulations, and maintenance costs will be fairly straightforward. You’ll also benefit from a diverse portfolio and healthy rental yields.
Now that you know the pros, cons, and potential profitability of HMO investment properties, here’s my step-by-step guide on what you need to know to navigate the process with confidence.
Before we dig in…
Our CEO, Jonathan Christie, has offered some words of advice on investing in HMOs:
“HMOs can be a great way to generate cash flow and long-term returns, so it’s no surprise they’re popular with many property investors. If you’re new to this space, my advice is to start by really understanding your local demand—student populations, young professionals and transient workers often drive HMO occupancy. Make sure you factor in licensing requirements and compliance as these can vary by local authority. And surround yourself with experts—letting agents, mortgage advisors and sourcing professionals who know the HMO market inside out. That support can make all the difference between a stressful experience and a successful investment.”
– Jonathan Christie, CEO of The Property Sourcing Company
Now that you know the pros, cons, and potential profitability of HMO investment properties, here’s my step-by-step guide on what you need to know to navigate the process with confidence.
Before we dig in, our CEO, Jonathan Christie has offered some words of advice on investing in HMOs:
“HMOs can be a great way to generate cash flow and long-term returns, so it’s no surprise they’re popular with many property investors. If you’re new to this space,e my advice is to start by really understanding your local demand—student populations, young professionals and transient workers often drive HMO occupancy. Make sure you factor in licensing requirements and compliance as these can vary by local authority. And surround yourself with experts—letting agents, mortgage advisors and sourcing professionals who know the HMO market inside out. That support can make all the difference between a stressful experience and a successful investment.”
1. Licensing, planning & legal considerations
Before committing to a HMO investment, you need to understand the legal requirements. HMOs are subject to regulations designed to protect tenants and responsible property management. Failing to comply with these regulations can lead to significant penalties. Here are the key areas you need to cover from a legal perspective.
HMO licencing
As mentioned, HMOs require a license from the local council. The type of license depends on the size and occupancy of your 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’re fit to be a landlord.
Planning classifications
You need to understand planning classifications to know whether your property can legally operate as an HMO:
- Class C3 (Residential): Family homes or single households.
- Class C4 (Small HMOs): Properties with three to six unrelated tenants sharing facilities.
- Sui Generis: Larger HMOs with seven or more tenants require this unique classification.
If your property doesn’t 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.
Article 4 directions mean you cannot convert a property to an HMO without planning permission, even for small HMOs (Class C4), and often applies in areas with high concentrations of HMOs to control their impact on the community.
There are some ‘hotspots’ for Article 4 directions. You’ll usually find them in university towns like Leeds, Manchester and Birmingham because local authorities aim to balance growing student populations with 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 compliant:
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.
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
Understanding regional and local regulations is also very important when investing in an HMO. 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 area of choice.
While mandatory licensing applies to larger HMOs across the UK, many councils operate additional licensing schemes for smaller HMOs. These schemes address local housing issues and ensure landlords meet specific safety, cleanliness and tenant welfare standards.
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. Birmingham City Council, for instance, introduced a selective licencing scheme on 5th June 2023, mandating that all privately rented properties in designated wards obtain a license, regardless of occupancy numbers.
3. Insurance and management considerations
Managing an HMO involves more complexities than a standard Buy To Let property.
From obtaining specialised insurance to ensuring efficient day-to-day management, safeguarding your investment and maintaining tenant satisfaction are essential when you’re looking to invest in HMOs.
Choosing HMO insurance: what to look for
Standard landlord insurance policies are often insufficient for HMOs because of the unique risks associated with shared housing.
HMO-specific insurance provides tailored coverage to protect your property and tenants based on your specific situation or requirements.
Here are the key features of HMO insurance you should look for when weighing up your options:
- Property damage: Covers any 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 you for rental income lost as a result of an insured event like a 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, you should 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, like handling multiple tenants, maintaining communal areas, and complying with legal standards.
Landlords have two main options when it comes to HMO property management:
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
HMOs are one of the most profitable strategies in property investment.
By renting rooms individually, you can achieve higher rental yields compared to traditional single-let properties by creating multiple income streams from one household.
For example, a three-bedroom house converted into a five-bedroom HMO could generate rental income from five tenants, potentially doubling or tripling the income compared to letting the property to a single family.
But as I’ve discussed, the potential for higher incomes comes with additional costs and responsibilities that you must manage with care. Take the time to understand your obligations and responsibilities as a HMO landlord and if you want to take the leap—you’ll be ready to find your ideal HMO investment properties.
Finding the right HMO property can be time-consuming and complicated, especially if you’re new to the market.
Before searching for HMO investment properties, you should have a decent budget. In addition to having funds to acquire a property, you should also have a refurbishment and maintenance pot.
I also advise starting small and investing in one HMO at a time. Doing so will help you focus on every key aspect of the HMO investment and management process while building your portfolio consistently.
To help you invest in HMOs with confidence, here’s a checklist you can use for reference:
Your Essential HMO Investment Checklist
Sourcing HMOs is daunting, but there’s an easier way to navigate the process. At The Property Sourcing Company, we’ll find high-potential HMO investments that fit your exact investment goals. Whether you’re looking for a ready-made HMO or a property with conversion potential, our in-house specialists will help you find the perfect HMO investments.
Here are a few of our example deals!
Tividale, B69
4 double en-suites, 1 single en-suite, 1 single
Kept in good condition internally and externally w/ professional
management
20% Discount, 14.8% Yield!
Warrington, WA5
6 bed HMO – Leasehold 871 years remaining (standard
construction)
£44,400 rental per annum
20% Discount, 15.9% Yield!
Investing in HMOs doesn’t have to be daunting. With The Property Sourcing Company, you’ll gain a trusted partner who will help you every step of the way. We’ll do the hard work so you can focus on building your property portfolio.
Yes. If you know what to look for and understand the responsibilities that come with this type of property, HMOs are a sound investment. As shared living is becoming increasingly attractive for students and young professionals, HMOs are in demand. Also, multiple paying tenants living in the same property translate to multiple revenue streams, resulting in higher rental yields and a consistently healthy return on investment (ROI).
When you’re managing a HMO property, you may need to obtain an appropriate license depending on the property type or location. You’ll also need to meet stringent safety regulations and legal requirements to remain compliant and avoid potential penalties. You’ll also need to screen potential tenants, provide water-tight contracts, and set up an efficient rent collection process.
When investing in HMOs, you conduct market research to identify high-demand HMO areas with healthy average rental yields. You should also set a healthy investment budget and take time to understand the legal and licensing requirements you’ll need to meet. There are countless factors to consider when investing in a HMO. To navigate the process with confidence, I recommend partnering up with a property professional—like The Property Sourcing Company.
Article Written By: Jessica Chambers
Jess is our Investment Team Manager, she has a wealth of experience in property investing and finance, working with a wide range of different types of investments from BTL, Flips, HMOs and more over the years. Experience she often shares on The Property Sourcing Company website.
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