Houses in Multiple Occupation (HMOs) attract investors because of their higher gross yields compared to single-let properties. A property that might yield 5–6% as a standard buy-to-let can yield 8–12% or more as an HMO, depending on the location, configuration, and management approach. But the higher yield comes with higher complexity, and the regulatory environment has tightened significantly over the past decade.

What counts as an HMO

Under the Housing Act 2004, a property is an HMO if it is occupied by three or more unrelated people who share basic amenities (such as a kitchen or bathroom). Bedsits, shared houses, and converted properties all commonly fall within this definition.

The definition matters because HMOs are subject to different regulatory requirements than single-let properties, including mandatory licensing in certain circumstances.

Licensing requirements

Mandatory licensing applies to any HMO with five or more occupants across two or more households, regardless of the number of storeys. This was extended from the previous three-storey threshold in 2018. Mandatory HMO licences are issued by the local council and must be renewed periodically (typically every five years).

Additional licensing can be applied by local councils to a wider range of HMOs — including smaller HMOs not caught by mandatory licensing — in their area. Requirements vary significantly by council, and investors need to check local schemes before acquiring.

Article 4 directions restrict the change of use from a standard family dwelling (C3) to an HMO (C4) in specific areas. In an Article 4 area, planning permission is required to convert a property to an HMO, which adds time, cost, and uncertainty to any conversion project. Article 4 directions are now in place in many major UK cities, including Leeds, Oxford, Bristol, and parts of London.

What licensees must demonstrate

To obtain and maintain an HMO licence, a landlord must demonstrate that: the property is suitable for the number of occupants; the management is adequate; and they are a fit and proper person. The property must meet minimum room size standards (introduced in 2018), fire safety requirements, and other prescribed conditions.

Failure to obtain a mandatory licence is a criminal offence and can result in unlimited fines, a rent repayment order (up to 12 months’ rent repaid to tenants), and difficulty using certain eviction routes.

The management challenge

HMOs generate more management activity than standard single-let properties. Multiple tenants mean multiple points of contact for maintenance, rent collection, and dispute resolution. Tenancy arrangements in shared houses also tend to have higher turnover than family lettings, which generates more void periods and re-letting costs.

Professional HMO management agents charge higher fees than standard letting agents — typically 12–20% of gross rent rather than 8–12% — reflecting the additional complexity.

Yields: what investors should look for

Gross yield is the most commonly cited figure for HMOs, but net yield — after void periods, management fees, maintenance, licensing costs, and any mortgage costs — is what matters for investment decisions. A property advertised at 12% gross may net considerably less once operating costs are accounted for.

Key factors that drive HMO investment returns include: location (proximity to universities, city centres, or major employers); the quality and configuration of the property; the local licensing regime; and the quality of management.

Buying HMOs from exiting landlords

A growing number of experienced HMO landlords are exiting the sector, driven by increasing regulation, management fatigue, and Section 24 tax exposure. These properties often come with existing licensing, established tenants, and a track record of income — which reduces the setup cost and risk compared to a conversion from scratch.

Firedstone regularly sources HMO and multi-let properties from exiting landlords across England and Wales. If you are looking to acquire an established HMO operation, contact us to register your acquisition criteria.

This article contains general information only. Licensing requirements and planning restrictions vary by location and change over time. Please consult qualified professionals and your local council before acquiring or converting a property as an HMO.