HMO Income Potential: Strategies for Landlords

HMO income potential continues to shape the private rental sector, offering landlords resilience and opportunity in a changing market. Rising house prices and stagnant wage growth have left many unable to step onto the housing ladder. As a result, demand for rental properties has surged, placing landlords in a stronger position. High occupancy rates and attractive rental yields have become the norm, particularly as tax reforms and higher mortgage rates have pushed some landlords out of the market, reducing overall supply.

For those who remain, adaptability has been key. Among the various options available, houses in multiple occupation (HMOs) have steadily emerged as one of the most profitable investment routes.

HMO Income Potential: What Makes HMOs Stand Out?

HMOs are properties rented by three or more unrelated tenants who share communal facilities, such as kitchens and bathrooms. This type of accommodation has proven particularly popular among students and young professionals who value affordability, convenience, and the social benefits of shared living.

Unlike traditional single-tenancy buy-to-lets, HMOs often generate higher income because each room is let separately. Even when one tenant moves out, landlords continue to receive rent from the remaining occupants, reducing the impact of void periods.

Recent research by Aldermore found that HMO landlords earned on average £120,283 in gross rental income over 12 months, nearly double the £61,846 earned by non-HMO landlords. This striking difference illustrates why HMOs have become such a lucrative option.

The Tenant Appeal: Cost and Community

From the tenant’s perspective, HMOs offer lower monthly rents compared to traditional private rentals. Students, for example, were found to pay nearly £200 less per month when living in HMOs. In today’s climate of rising living costs, such savings are significant.

Beyond affordability, the shared-living model appeals to many who have moved cities for work or study. According to polling by Opinium, 74% of HMO tenants said their living situation improved their social life. The opportunity to meet new people and integrate into a community is a major draw, especially for younger renters.

HMO Income Potential Beyond Numbers: Measuring Portfolio Strength

Property investors often talk about portfolio size in terms of the number of properties owned. However, as developer Douglas Reid points out, the number of bedrooms can be a far more revealing measure of cash flow and value.

For instance, a single five-bedroom HMO can generate considerably higher returns than a one- or two-bedroom flat, even though each counts as one property on paper. This doesn’t mean smaller flats in prime locations are poor investments, but HMOs often provide stronger long-term financial rewards.

Rising Standards in the HMO Market

HMOs once had a reputation for being lower-quality housing, but that perception is changing. Landlords are increasingly investing in upgraded amenities, including en-suite bathrooms, larger kitchens, and stylish communal areas.

George Young of Aldermore explains that reduced supply and growing demand have created competitive conditions, motivating landlords to raise the standard of their properties. In some parts of England, HMOs have even been selling for almost 50% more than the average house price.

Investors are also turning to newly built or fully renovated HMOs, many of which are professionally managed to reduce the hands-on burden. For landlords with larger portfolios, this model can provide reliable returns with fewer management headaches.

HMO Income Potential: Costs and Considerations for Investors

While HMOs can deliver higher returns, they are not without challenges. Investors must consider:

• Licensing requirements: Large HMOs (five or more tenants) require a licence, valid for up to five years, costing £600 to £1,500 depending on local council rates. Smaller HMOs may also fall under selective licensing schemes, which are becoming increasingly common.
• Higher maintenance costs: More tenants mean greater wear and tear, and therefore higher upkeep expenses.
• Management responsibilities: Multiple tenancies demand more oversight, increasing the likelihood of disputes or administrative complexity.
• Regulatory obligations: HMOs are subject to stricter rules around fire safety, space standards, and communal facilities.

Factoring in these costs is essential before making an investment decision.

Mortgage Availability and Financing HMOs

The surge in popularity of HMOs has not gone unnoticed by lenders. According to Aldermore, the number of mortgage products for HMOs has reached a 13-year high, giving landlords greater choice and flexibility.

Portfolio diversification is a driving factor, with more investors converting single lets into HMOs. This trend has been particularly strong in the North of England, where demand for affordable shared housing remains consistently high. Location, therefore, plays a critical role in ensuring every room is filled.

HMO Income Potential and the Shift in Attitudes

The shift towards HMOs is not purely financial. Social benefits, community living, and affordability are all shaping tenant demand, while landlords are responding by offering better quality homes. With rental markets tightening, this type of investment has become both a profitable and socially relevant choice.

As Aldermore’s director of mortgages, Jon Cooper, puts it: “While no housing option is without its trade-offs, HMOs are defying outdated perceptions. With good management and attention to quality, they provide rewarding returns for landlords and affordable, socially enriching homes for tenants.”

Final Thoughts: Is HMO Investment Right for You?

HMO property investment has carved out a strong niche within the UK’s buy-to-let landscape. Higher yields, reduced void risks, and growing tenant demand make them highly attractive. However, investors must weigh the benefits against the additional costs, management demands, and regulatory responsibilities.

For landlords willing to invest in quality and manage effectively, HMOs can represent not only a financially rewarding strategy but also a way of meeting the evolving needs of modern tenants.