What is HMO investment?

HMO stands for ‘Houses in Multiple Occupation’ or ‘Houses of Multiple Occupation’.

An HMO property investment is widely recognised as more profitable. Investing in HMOs commands higher rental yields and, depending on the structure of the investment can be a way to invest in property with little demand on the owner’s time.

Before we look at HMO Property Designs and what we can offer investors on property investments, let’s look at the general market.

What qualifies as an HMO property?

For a property to be categorised as an HMO property, it must be a house that is split into separate rooms and let out to three or more tenants. These tenants cannot be members of the same family, and nor can the property have just one tenant.

Multiple tenants in the HMO property will share facilities such as kitchen and bathrooms. To meet regulatory standards, the property must have a local council HMO Licence. This allows the property to operate within the required regulatory and legal framework.

What kind of property counts as a house of multiple occupation?

You will most likely come across an HMO property referred to as a house share. Students who are privately renting will most likely be in some form of HMO property.

HMO properties are popular accommodation solutions for young professionals too. This is because they can access a let property of higher quality than if they were to rent a studio or small flat for themselves.

Multiple tenants pay separate rents to the property owner or landlord, and management companies can ensure that the property complies with regulations and is kept in good order.

So, the major benefit for multiple tenants is an affordable rental, while for landlords it’s the regular income from three or four separate tenants. For a property investor, income will be higher for HMO properties than standard buy to let residential properties with just one tenant or one family paying rental income.

HMO Property investment versus standard buy to let property investment

Average yields for rental income are as follows, showing the difference between the income investors can expect from HMO properties compared with buy to let properties.

Q3 2019

HMO: 8.92%

B2L: 5.72%

Q4 2019

HMO: 9.37%

B2L: 5.78%

Q1 2020

HMO: 8.7%

B2L: 5.82%

Q2 2020

HMO: 7.68%

B2L: 5.91%

Q3 2020

HMO: 9.16%

B2L: 5.82%

Q4 2020

HMO: 9.13%

B2L: 5.69%

*This data is from Mortgages for Business Buy to Let index.

What are the downsides to HMO property investment?

At HMO Property Designs we offer specifically designed investment strategies that mitigate the stress of HMO investment.

Without this, however, some landlords may find that property investment into HMOs are sometimes more challenging to manage. HMO investment will absolutely give the investor/landlord higher yields than other forms of property investing. However, investors may find that running costs are higher and the time needed for management is also higher.

Therefore, a new landlord looking for the benefits of investing in student accommodation may think that the risk outweigh the upside. While some property experts say that a landlord who is brand new to the market should avoid choosing an HMO investment in favour of a more traditional property, at HMO Property Designs, we disagree.

Our investment strategies allow investors to let properties, collect regular rent and have the management taken care of.

What is an HMO licence and why is the legislation in place?

A local council or authority will grant HMO licences for residential housing in their area. that is let out to students or other multiple occupants. These remain valid for five years, and legislation surrounding these licences has changed relatively recently.

Currently, any property that rents to five or more tenants who come from two or more households, and who all share facilities needs a licence. This means that, in many cases, smaller properties may not need a licence.

Legislation differs between different local authorities, so any investors considering moving into HMO investment should check the rules in the property’s region.

All relevant legislation and regulatory compliance is fully covered and managed by our team for a stress-free way of gaining financial value.

The kinds of conditions contained within licences include:

  • Who is managing the rooms and the property. This could be the investor or managing agent. Whoever it is must be legally considered ‘fit and proper’ to handle the job. Generally, this refers to having key areas covered, such as not having a criminal record or being in breach of landlord codes of practice.
  • How suitable the property is to be an HMO investment. The property must be adequate for the relevant number of people living in it and encompass the correct facilities.
  • The property manager must provide an up-to-date Gas Safety Certificate to the local authority on an annual basis.
  • Smoke alarms must be in place and maintained correctly.
  • All electrical appliances must have up-to-date test certificates.
  • The rooms in the house must be a certain minimum size. This is key and something that should be taken into consideration for investors converting a property to meet HMO demand. Complying with these regulations is essential for the property owner to raise capital on the property.

What is the criteria for a buy to let HMO?

Demand for HMOs derives from students, young professionals or single tenants who want high quality accommodation at a lower cost.

Renting rooms in a shared house or HMO is therefore the ideal solution.

As an investment property type, HMOs are considered specialist. In terms of lenders and mortgages, some include them and some don’t – but most do. The specific criteria varies between lenders, but in general when it comes to HMOs and those who want to invest in them, the following criteria apply.

Number of rooms

Most lenders for buy to let HMOs consider up to six bedrooms acceptable. Any more rooms than this, and there is a perception from those looking to invest that it becomes commercial. While specialist lenders can meet the demand for large houses of multiple occupancy, the majority will focus on a house with up to five rooms.

All of our properties sourced by specialists at HMO Property Designs are three or four room configurations, depending on the client’s plans for the house.


As we’ve already covered, HMO properties often meet the high demand for student accommodation. Students who want to rent one room in a house rather than depend on university owned houses will turn to a shared house.

Almost all lenders accept students, young professionals or tenants on some form of benefit. When people invest with us, part of the package we offer includes providing already vetted tenants for their property.


For lenders, the valuation of the property will depend on a number of factors. If the property is in an area with few other HMOs, then they may do a traditional survey and compare it with average single household properties to find the price and value.

However, this obviously doesn’t include the money and income made on each room of the property, which has a bearing on the price and potential capital it could make for the investor.

HMO mortgage options

At least a third of buy to let mortgage lenders include HMOs. There is a recognition of the recent growth in popularity of HMOs from investors who see it as taking a lesser risk. This growth is likely to continue as there is a rising number of young professional people, students and individuals looking for non-traditional property solutions.

This is particularly the case in cities with high levels of corporate growth, cities with multiple universities and places of education and cities that are rising in value for job-seekers and those looking to improve their financial position.

Do HMO landlords have to be highly experienced?

This depends on the investment and financial strategies they are considering. The average mortgage lender may feel that HMOs or multi let properties are better handled by experienced investors.

This is one of the reasons why we have devised investment options that are suitable for experienced and for new investors to the market.

The rise in popularity of HMO investment solutions

During the last 15 years or so, the UK HMO sector has grown considerably.

This is mainly down to the demand for affordable accommodation, due to excessively high house price growth.

In the UK, the average price for a house is £253,000, leaving a first-time buyer needing more than an average salary (£30,800) to afford the deposit.

In London, of course, property prices are even higher. Currently, the average price stands at more than £500,000.

So, for people who aren’t comfortably on the property ladder, renting is their only real choice. It also seems that there is an increase in young people (21- to 35-year-olds) choosing not to buy and preferring a rental property anyway. Again, this is particularly the case for this demographic in London.

How many people are in the private rental market in the UK?

It’s estimated by the Government that there are more than 4.4 million households privately renting their property, regardless of the location.

And within the private rentals market, in England and Wales there are approximately 497,000 HMOs.

People simply cannot manage to afford to buy properties in places like London. Furthermore, there are many people not in traditional family units who actively choose to be a tenant.

House prices may preclude them from owning without an outlay of money that they can’t afford, but HMOs allow them to live in a location they choose for prices they can afford.

Investors increasingly want to invest in HMO properties

As well as the growth in popularity of HMOs with tenants, those looking to invest are more interested in these opportunities too.

For landlords, investments like this could give them higher gross yields than traditional investment deals.

Investors could be put off the idea of the management aspect compared with traditional deals. However, the benefits outweigh the risk for many – particularly if a management company takes on the responsibility for the owner/investor.

This kind passive income is ideal for those investing in HMOs. So the tenant is happy with a high quality, well maintained room in a shared house, and the investor benefits too.

Local authorities are also keen to promote HMO investments in major cities like London and Manchester. This is because councils can control the density of HMOs and other housing stock in a specific region.

Every property investor interested in meeting the demand for HMOs must remember that local authorities will absolutely demand permission for conversions.

Again, at HMO Property Designs, this is part of our offering to clients, which we’ll go into more detail about further on.

The UK has a housing shortage

The UK Government says that there is a chronic under-supply of housing in England.

In this article, they estimate that there is a demand for up to 345,000 new properties every year.

However, the Government has never met its targets in providing new properties.

This drives demand for HMOs. At the same time, there has been an upswing of demand from tenants as well.

What do HMO Property Designs offer investors looking for rental income?

Our team is highly experienced in this sector and have crafted unique deals to ensure that clients get the rental income they want.

The schemes offered by HMO Property Designs, which is an investment firm for landlords and investors, guarantee ultimate yields of up to 20%.

This corresponds to a monthly rental income of more than £1,500 per calendar month.

While many concentrate on London to invest in property, our carefully sourced houses are mostly in the North West.

Manchester and the North West of England offer great returns on HMOs, along with relatively low house prices to outlay.

As a company, HMO Property Designs is the biggest independent student accommodation conversion business in Manchester and the North West.

Investments with HMO aren’t all based in Manchester itself, but many are nearby in the surrounding area.

As a company we have vast experience in the HMO space and can advise on everything from

What makes our company different?

Our packages for those looking to invest in multi room properties are unique to the market.

The HMO Property Designs team has sourced a portfolio of suitable houses that can be converted to accommodate each bedroom.

The client buys directly from the vendor, but from our portfolio. Prior to the exchange of contracts, we produce a plan for conversion and reconfiguration of the property to meet the investor’s needs.

This could include leaving the property as a two-bedroom house or converting each room so that it is suitable for a tenant each. The conversion of the property into HMO is fully compliant with Article 4, which is Government legislation concerning the change of use of a property to an HMO.

The team then manages the redesign/refurb of the property. So, the client is sure to invest not just in the property, but also all aspects of management (through our sister management company), compliant refurbishment and configurations suitable for either multi-let or B2L.

Why should people invest through HMO Property Designs?

Those that invest through one of our schemes can expect returns of between 15 and 20% on the multi-let option.

The majority of the deals that we manage comprise four-bed HMOs.

To invest in a traditional B2L model usually commands around £400 pcm in rent. Allowing for mortgage and maintenance, a net profit averages around £150 pcm.

The HMO investment model, on the other hand can yield around £1,100 pcm, equating to £13,200 per annum.

For more information about the investment model head to our website.