With house prices in the UK constantly rising and many people priced out of buying their own home, one property strategy which continues to provide a lifeline to those looking for affordable housing is renting an HMO (house in multiple occupation). HMOs are playing a vital role in meeting demand from students, young professionals and key workers who all need affordable housing.
If you are a property investor looking for a smarter way to rent out property, an HMO might be a more profitable and safer alternative to a traditional single let property. By renting out individual rooms rather than an individual property, you can achieve higher rental yields and reduce the risk of void periods.
According to a recent study, the HMO market in England and Wales is worth £78 billion, generating annual rental income of £6.3 billion. These figures not only highlight the huge potential in this sector but also its importance in the UK housing market.
Searching for properties and sites suitable for HMO development requires thorough research and an understanding of local planning permissions.
In this guide, we will explain what HMOs are, why they are an attractive option for investors, what you need to consider before investing and how the AI-powered Landstack Site Finder tool can instantly locate potential HMO opportunities by defining specific criteria.
What Does HMO Mean in Property? (England & Wales)
When talking about property, HMO means house in multiple occupation.
An HMO is a house or flat, which is rented out to at least 3 people who are not related to each other (not part of the same family or household).
To qualify as an HMO property, occupants must share basic amenities such as toilets, a kitchen and bathroom facilities.
A property is classed as a large HMO if at least 5 unrelated tenants rent the property, and this type of HMO must have a mandatory HMO license.
It is important to note that HMOs in Wales have different planning regulations from HMOs in England, with Wales having additional licensing schemes tailored to their local authorities.
If you want to rent out a property as an HMO in England or Wales, you must contact your council to check if you need a licence. HMO licenses cost between £300 and £2000 and are valid for 5 years.
Why HMOs Can Be a Smart Investment Strategy
HMOs can be a smart investment strategy because they have far higher rental yields than single let properties and can also help minimise financial risk.
For example, if you rent out a 4-bedroom HMO to 4 tenants, you will earn rent from each room. If one tenant decides to move out, you will still receive rent from the other three tenants, reducing the risk of lost income, which is especially reassuring in times of economic downturn. In comparison, renting a 4-bedroom property to a single tenant means that if they leave, you lose all your rental income.
Another reason HMOs can be a smart property strategy is that their higher rental yields can help you pay off your HMO mortgage faster.
For the right investor, HMOs are a great investment strategy, but despite the benefits, it is important to understand that HMO properties often require higher upfront costs and entail more management.
What to Consider Before Investing in an HMO
Investing in an HMO can be a high-yield strategy, but before investing, you must consider all of the costs you will incur in order to get your HMO ready for occupation.
Beyond the initial costs, investors must understand local planning permissions, licensing requirements and mandatory room size standards.
Landlords of HMOs must meet higher safety standards, including annual gas checks, 5-year electrical inspections, and specific fire safety regulations.
Although the HMO model offers benefits such as higher rental yields, resilience during tough economies, and the ability to add value (e.g., converting a three-bed property into a six-bed property), success will largely depend on location.
To stand the best chance of reliable occupancy, HMOs should be situated near major employment hubs, hospitals and universities while avoiding areas of HMO saturation.
HMOs and Article 4 Restrictions
In recent years, cities like Liverpool, Manchester, Leeds, and Birmingham have become extremely popular for HMOs, but as more investors have established HMOs in these cities, saturation has occurred in some places. This has led to increased competition, lower rental yields and additional planning permissions and licensing requirements by local authorities.
In Liverpool, HMOs have played a vital role in providing affordable accommodation for university students and young professionals, while also driving regeneration in certain areas of the city.
However, due to the saturation of HMOs, many parts of Liverpool are now subject to Article 4 restrictions.
Prior to 2021, investors in Liverpool benefited from permitted development rights, allowing free rein to convert single dwellings into HMOs without needing planning permission, but with the introduction of Article 4 restrictions, development rights have been removed, and planning permission is now required to convert properties into HMOs.
With many local authorities now implementing tighter restrictions, investors need to stay informed about areas subject to these changes.
If you are an investor looking for potential HMO opportunities, Landstack Site Finder can help you easily identify properties and instantly check if they’re subject to Article 4 restrictions.
For instance, using Landstack Site Finder, you can input a query such as “Show me residential properties within 3 miles of a university or hospital that are not subject to Article 4 planning restrictions.” The app will then generate a list of properties that meet your criteria, allowing you to review each one for suitability.
AI in Property Development – Landstack Site Finder
AI is transforming property development and Landstack AI tools can provide up-to-date, detailed information for developers, investors and professionals.
By using our AI-powered Site Finder tool, you can instantly locate potential HMO opportunities and make informed, strategic decisions.
If you would like to discover how Landstack Site Finder can help you find potential HMO opportunities, please email us at support@landstack.co.uk or contact us for a free demo.