Houses in Multiple Occupation (HMO) can be more profitable than standard rental property – if you do it right.

What is an HMO?

A house in multiple occupation (HMO) is defined as “A property rented out by at least 3 people who are not from 1 “household” (e.g. a family) but share facilities like the bathroom and kitchen. It’s sometimes called a “house share”.

By letting out each room individually a landlord can usually make more money than letting out the whole house to one tenant or family.

If your HMO has four or fewer occupants, then you shouldn’t need a licence, but it is always best to check with your local authority to find out their requirements.

However usually to be profitable most HMOs need to have at least five tenants and this will usually require a licence.

And while HMO’s are more profitable they are also more work – there are more tenants to deal with as well as more chances of void periods with tenants coming and going much more frequently than in homes they rent as a whole.

What the advantages of a HMO?

There are two main advantages to running a HMO

  • Higher rental income
  • Fewer impactful voids (the wheelhouse will rarely one empty at one time)

What are the drawbacks of a HMO?

The main issues to consider when running an HMO are:-

  • No Capital Growth
  • More voids as tenants come and go
  • Extra costs

Costs to consider when setting up a HMO

As well as taking up more management time, HMOs can also incur more running and set up costs. These need to be considered when putting together a HMO business plan:-

  • Mortgage/Finance
  • Set up costs to convert to a HMO
  • Management
  • Furnishing (most HMOs are supplied furnished)
  • Bills (most HMO rentals are inclusive of bills)
  • Licensing
  • Insurance
  • Voids or arrears

How to finance a HMO property

There are less than a dozen specialist UK lenders who are willing to lend on HMO properties and some lenders will only give mortgage finance on HMOs to experienced landlords.

This is because HMOs tend to be seen as higher-risk than standard BTLs and that is also reflected in higher interest rates.

They set their own definitions of HMOs, and what they are willing to lend against, which is why you need a broker to put together your application and find the right broker to match.

An experienced broker such as M3 Commercial Finance can package your application to suit the lender who will give you the most favourable terms, which significantly speeds up the application process.


What if I can’t get a mortgage or have no deposit?

There is a way to get into the HMO market without having to purchase or own a property.

The Rent-to-Rent model allows you to get into HMOs without a deposit, without a mortgage and without stamp duty or legal costs.

This is where you rent the property from a landlord and then rent it out yourself at a higher price.

This model can work well with HMOs as it is is easier to maximise the return but letting each room individually rather than the house as a whole.

Of course you have to ensure the rent gathered covers all all the costs plus profit.

By doing this you can use a business loan and asset finance, which is much easier to obtain, to help pay for up front costs.



If you would like to talk to us about financing your HMO or arranging asset finance or a loan for a rent-to-rent venture drop us a line on 0161 913 2780, or contact us here

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