What to Consider When Investing in an HMO Property

Demand for affordable housing in London is high, and Houses in Multiple Occupation (HMOs) offer a more affordable housing alternative to tenants. For investors, there is an awareness of the benefits of investing in an HMO property, perhaps as part of a more diverse portfolio, as monthly rental yields can be high.

HMOs have become more popular in recent years, partly due to the higher monthly yields, but also as consequence of a growing awareness of the benefits of a diversified portfolio.

If you’re exploring the possibilities of investing in an HMO property and need a little more guidance as to what to consider before either purchasing an HMO or converting an existing property into an HMO, we’ve put forward some pointers for landlords and investors.

Purchasing an HMO

It can be harder to secure a mortgage for an HMO than for a standard buy-to-let, especially for those landlords who are buying their first HMO. You may have to raise a higher deposit before acquiring finance, and higher interest rate charges may apply. Our advice is to research the HMO mortgage market and speak to a mortgage adviser.

It is also worth noting that capital growth can be lower on an HMO than on a standard buy-to-let, and they are generally more expensive to maintain. You can also expect higher property insurance costs. Before investing in an HMO, you should do your research and weigh up the potential costs involved.

Converting an existing property into an HMO

You may require planning permission to convert an existing property into an HMO, so always check with the local authority. Also check whether there is a call for HMOs in the area you have your sights on. Is the local market saturated with HMOs already? Or perhaps there is a demand for more affordable housing? Always do your market research and seek advice before converting an existing property.

HMO pros & cons

HMOs can be an excellent investment, but they require more work than your standard let. First of all, you need to pay careful attention to the licensing requirements in your area and ensure your property meets the required standards set by the local council. In addition, you will have to ensure that your property fits the requirements for room sizes, age of amenities (like kitchen or bathroom), fire safety regulations and more. Here’s an overview of the pros & cons of a HMO (and regular let):

HMO Lettings considered

Pros:

• Higher Rental Yield: Renting by the room typically generates more income than letting the whole property to one household.
• Reduced Vacancy Risk: If one tenant leaves, others remain, maintaining partial income.
• Strong Demand in Certain Areas: Especially in university towns or cities with young professionals.

Cons:

• More Regulation: Requires licensing, safety compliance (e.g., fire doors, alarms), and council inspections.
• Higher Management Time/Cost: More tenants = more maintenance, admin, and potential disputes.
• Greater Wear and Tear: Multiple unrelated tenants typically cause faster property deterioration.

Normal Residential Let

Pros:

• Simpler Management: One tenancy agreement, fewer tenants to deal with.
• Lower Regulatory Burden: Fewer legal requirements compared to HMO.
• Longer Tenancy Terms: Families or couples may stay longer, reducing turnover.

Cons:

• Lower Income Potential: Letting to a single household usually yields less monthly rent.
• Full Vacancy Risk: If the tenant leaves, the whole property is empty with no income.

Regulations and rules affecting HMOs

HMOs are subject to a lot of regulation. For example, you need a licence to rent out a large HMO, and each HMO property you own will require a separate licence. You can be fined for letting out an unlicensed HMO.

There are rules and regulations surrounding fire safety, gas safety, smoke alarms and communal facilities in HMOs, while a landlord will also have to oversee ongoing maintenance, which tends to be more expensive with an HMO. There may be more repair and maintenance issue, and the local council is responsible for enforcing HMO standards.

Right to Rent checks also need to be carried out, and with an HMO this will be more time-consuming, as you are letting to more tenants.

HMO rules for landlords

In Wandsworth an HMO license is required if the property has five or more occupiers comprising two or more separate households and some or all of the occupants share amenities such as bathrooms, toilets or cooking facilities. You can arrange for a licence on the Wandsworth Council website.

If you’re looking to rent out a property in Tooting or the surrounding areas, get in touch for more help.

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