What is an HMO?
An HMO is a rental property for three or more unrelated tenants with shared facilities and extra regulations
The legal definition of a House in Multiple Occupation (HMO) in England and Wales is:
There are three or more occupiers, who form more than one household
The occupiers share toilet, bathroom or kitchen facilities
Around 20 years ago, the HMO sector was mainly made up of tatty student housing and very basic room rentals for those on low incomes.
But through the 2000s, as the buzz around buy to let property investment became much more widespread, landlords realised there was a demand – particularly from young working adults - for affordable, good quality accommodation.
With room-rent HMOs, tenants pay rent for their own private bedroom and then benefit from all the amenities of a large house, which is maintained by the landlord. And because their rent is usually inclusive of all bills, it’s easy for them to budget.
Many of those moving away from home for the first time or starting a job in a new city like the idea of living with others in a sociable house share. It also tends to suit people whose job requires them to move frequently, people who work long hours – e.g. in healthcare or as cabin crew - and those who simply don’t want to have to worry about looking after a whole property themselves.
As lettings legislation has tightened up over the past 15 years, particularly around health and safety for tenants, the standard of HMOs has improved further and there are now professional houseshares that almost have a ‘boutique hotel’ feel.
And given the way that rents have risen through the past few years, and the severe shortage of available accommodation in many towns and cities across the UK, demand can be strong for this kind of affordable, convenient housing.
While HMOs are more time-consuming to manage and the operating costs are higher than for a single-let property, the rental profits are what make it worthwhile for landlords.
And although the relative cost of making sure you’re following HMO requirements and being legally compliant is higher than it was 15 years ago, and the cost of living has pushed up the price of utilities and maintenance, yields for HMO property are still leading the private rental market.
Paragon Banking Group’s PRS report for Q1 2023 in England shows that HMO property generated the best rental yields at 6%, versus 5.3% for houses and 5% for flats and bungalows. And their latest research shows that HMO yields around the UK are currently varying from around 6% to 9% (as at mid-2023).
However, it’s important to understand that with greater profits come extra responsibilities. Letting any property requires a huge amount of knowledge and carries a certain amount of risk, but both those are heightened when it comes to HMOs.
It’s also true that because the yields can be higher, many landlords have entered this market without checking out the supply and demand in their area.
This means that although HMOs can make money, some areas have become over saturated, so knowledge and research are essential to invest and run HMOs successfully.
If there are at least five occupiers, the property is defined as a ‘large HMO’ and must be licensed.
Each tenant usually rents and exclusively occupies either a room or a bedsit in the HMO, then enjoys the use of the common parts of the property, such as the kitchen and bathroom, and often a living room.
Because the tenants are unrelated, usually don’t know each other and tend to be moving in and out at different times, they will each sign their own tenancy agreement.
I use a letting agent to manage my HMO property
I self-manage my HMO property full-time
I self-manage my HMO property part-time
