A three-bedroom house in east London might let to a family for £1,800 a month. The same house, let room by room, might bring in £2,700. That gap is why landlords ask us about HMOs, and it is real. It is also not the whole picture.
Where the extra money goes
Gross rent rises. So does almost everything else.
- Bills. Room rents are usually inclusive. Gas, electricity, water, broadband and a TV licence on a five-bed HMO commonly run to £350 to £500 a month.
- Licensing. A mandatory HMO licence typically costs several hundred to over a thousand pounds for five years, plus the works the council requires to grant it.
- Fire safety. Interlinked alarms, fire doors, emergency lighting and signage. On a conversion this is rarely under a few thousand pounds.
- Management. Five tenancies, five deposits, five move-ins and five sets of arrears to chase. Management fees are higher because the work genuinely is.
- Voids. A single let is either full or empty. An HMO is usually 80 to 100 per cent full, and that missing room is a permanent line in your budget.
Compare net yield against net yield. An HMO that beats a single let on gross rent and loses on net is a much busier way to earn the same money.
The rules that decide whether you can
Three things determine whether a property can become an HMO at all:
- Planning. Many boroughs have Article 4 directions removing the permitted development right to convert to a small HMO. Where one applies, you need planning permission, and it is not always granted.
- Licensing. Five or more occupiers forming more than one household means a mandatory licence. Additional licensing schemes catch smaller properties in many areas.
- Standards. Minimum room sizes, a set ratio of bathrooms and kitchen facilities to occupiers, and full fire safety provision. A room under 6.51 square metres cannot be let to an adult at all.
Who an HMO actually suits
In our experience it works for landlords who want yield and accept involvement. It works badly for landlords who wanted a passive investment and were sold on the gross figure.
It also depends heavily on the property. A house with a second reception that can become a bedroom while leaving a communal space is a good candidate. A house where every room becomes a bedroom and tenants have nowhere to sit is a difficult property to keep let.
The honest summary
An HMO done properly, in the right area, with a landlord who is either hands-on or paying for proper management, earns meaningfully more than a single let. Done casually, it earns a little more and costs a great deal more attention.
If you are weighing a conversion, talk to us before you commit. We will run the net numbers on your actual property and tell you honestly if it is not worth it.
