Benefits of HMO Property Investment

Reading Time: 5 minutes

The House of Multiple Occupancy (HMO) market has grown strongly over the last few years and is estimated to be worth around £26 billion in England. Landlords can make excellent investments in HMOs – either as a standalone strategy or as part of a diversified portfolio. But what are the advantages of investing in HMOs? Read on to learn about the benefits of HMO investment in this article.


What are the advantages of investing in HMO properties?

There are pros and cons to investing in HMOs, as with any property investment. But HMO investment can bring some clear benefits if done correctly :

  1. Higher rental yields 

As of the first quarter of 2021, HMOs in the UK recorded the highest property yield of 7.5% according to the Statista Research Department.

With an HMO property, better use can be made of the rentable space. Having a room-by-room rental system enables HMO properties to generate a significant increase in revenue compared to the standard single-let property. 

For example, when consulting Rightmove, the standard single-family rent for a 5-bed property in Cambridge was approximately £3,000 per month. But for a similar house and location, each room would rent for around £900 as an HMO property. Having 5 tenants would make your HMO gross monthly income £4,500 instead of £3,000, which is an extra £1,500 per month.

More tenants mean a higher, more secure gross rental income, which can translate into higher annual yields, making HMO’s a lucrative business for you.

  1. Robust demand

HMOs are a practical solution to the downward trend in homeownership as house prices continue to rise. Gen Z and millennial professionals prefer to live in an HMO, as it’s a more flexible and affordable option that allows for greater mobility.

Although private renting in the UK is becoming more expensive, HMOs are more resilient to market fluctuations. This is attractive to students and young professional tenants, resulting in higher and steady demand.

As a property investor, you may have also considered shared living student accommodation. More and more international students are choosing the UK to pursue their studies. Thus, student HMOs are highly demanded and have a huge potential if your HMO investment is located in a major university city. You can also target university towns and cities if you are looking to accommodate young professionals.

  1. Less impact from rental void periods

A void period is the amount of time during which a rental property is unoccupied and therefore generates no income for the private landlord. And this is a major reason for the loss of expected rental income.

The risk is higher in the case of a single-let property as you’re relying on renting your property to one tenant only. If the tenant gives notice,  you may have a void when this tenant moves out until you get a new one.  

However, that’s not the case with HMO property investments, as you’ll be renting to several occupants who will continue to pay their rent while you find a replacement for the vacant room. Having more paying tenants for the same property minimises the risk of rental void periods because you can still rely on the income your occupants generate.

  1. Arrears are less likely to affect your cash flow

Similarly, if the tenant of your single-let property is in arrears with the rent, you’ll be affected immediately by the lack of cash flow. But in the case of HMOs, you still have more sources of income for the property. This will keep your cash flow going, giving you some room for manoeuvre to remedy the situation.

  1. Make the most of your property portfolio

The number of properties you own can be directly proportional to the income you generate from them. But being the owner of multiple properties can be challenging because you have to manage them all simultaneously.

Investing in HMOs is a great solution because you’re more likely to save time and management costs, as all of your income comes from the same properties. Despite owning a small number of HMOs, you  can still generate a higher cash flow compared to traditional buy-to-let properties. 

How to make sure you get the most out of your HMO property investment?

Location is key

Choosing the right location is vital. Thus, you should do your research on the area. And here are some aspects you should consider:

  • Is there a good population base?
  • Is there a good employment base?
  • Is there convenient access to transport and other services?

Your HMO property should be located in an urban area, as a larger population will also ensure a higher demand. There should be employment opportunities available, public services and amenities within a reasonable distance, and good transportation connectivity.

Choose an area with high economic growth and evaluate the demand for HMOs before making your investment.

Study the market

The HMO market is competitive, so it’s of the utmost importance that you do your research in the city where the property is located. Doing this will provide you with valuable insights: 

  • You’ll know what the rental demand and rental rates are. With this information, you’ll be able to establish a realistic rental price and have a clearer idea of potential yields.
  • By studying the HMO market you can also evaluate the quality of the multi-let properties in the area. Doing this will allow you to determine what’s needed to run a successful HMO and set your property apart from the competition. 

Know your HMO goals

Your goals will ultimately determine the type of property you buy. 

Properties that allow you to maximise the number of rentable rooms will result in higher income. If your main objective is value for money, you may be willing to invest in a property that requires a lot of work, but that will potentially achieve a large uplift in development returns. 

Taking into account the market and the needs of the tenants, you may decide to change the size of the bedrooms. You may also furnish the property to a higher standard than the competition and later charge a premium for this. 

Perhaps you’re not interested in the amount of income you can earn, but in the speed at which it can be generated. In that case, you may choose a property that won’t take long to convert into an HMO so that you’re able to draw income faster.

What makes a good HMO property investment?

With proper planning and design, your HMO property can be a great investment. But it must meet the requirements of the planning regulations relating to HMOs.

Smaller HMOs ( for 3 or 4 separate household tenants) are the most straightforward developments. As it’s easier to obtain planning permission for this type of HMO, the property gets to the rental market faster.

Larger HMOs (5 or more separate household tenants) are more complex developments that may require consultation periods and committee meetings. But the rental income of larger HMOs is significantly higher.

If you’re a property investor and landlord with a passion for quality of life and design, your aim may be to create an HMO property with a sophisticated décor that will attract high-end professional tenants.

But what do young professional tenants want from an HMO? 

Young tenants want a place that meets their practical needs and at the same time provides them with a sense of community. An HMO property that appeals to professional tenants has amenity spaces where good discussions can take place and long-lasting friendships can be made. And this requires a modern and forward-looking design.

How HMO Architects can help you

We’re well-equipped to support you on your project. You can count on our expert team to handle all aspects of your HMO development, from planning to construction. With 97% planning success, we can help you get your HMO Planning and Building Regulation approved faster.

We’re passionate about transforming tired houses into comfortable and welcoming accommodations. At HMO Architects, we pride ourselves on creating unique and valuable HMOs with a memorable designs that will make your offer stand out from the local competition. 

We’ll design top-quality, innovative accommodation tailored to the needs of your ideal tenants. And you’ll be able to choose between a traditional HMO project and Co-living HMOs, which are high-end HMO projects. 

With our proposed upgrades, you’ll achieve a higher rental income, impressive cash flow and commercial valuation returns. 

Our designers can provide you with CGIs and Photo Realistic Rendors so you can market the project immediately.  In this way, you can start to secure financing and find tenants and potential buyers before the construction is completed.

Let us assist you in achieving your goals in property ownership. We’d love to help you grow your HMO property portfolio. Should you have any questions, please get in touch.


10 Step Checklist To Prepare Your HMO For Tenancy & Maximise Cash Flow

Giovanni Patania

Giovanni Patania

(Architect Director, Co-Founder)

Giovanni Patania is the Lead Architect and Co-Founder at HMO Architect and Windsor Patania Architects.

Originally from Siena, Italy, Giovanni worked as a Project Lead Architect at Foster+ Partners, designing Apple stores across the world,

An HMO Investor himself, Giovanni understands property thoroughly, both from an investor's perspective and technically, as an Architect.

With over 15 years of HMO development experience, working on over 150+ HMOs and a 95% Planning and Building Regulation success rate, Giovanni has the expertise and credentials to help you on your HMO journey."



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