HMO vs Single-Family Let: Which Is the Better Option for Landlords?

For landlords looking to maximise the return on their property investment, choosing the right rental model is key. Two common types of residential lettings are HMOs (Houses in Multiple Occupation) and single-family lets. Each has its own set of advantages, risks and management requirements, and the decision will largely depend on your investment goals, property type and risk appetite.

A recent report showed many landlords were turning to HMOs as they offer superior returns at a time when mortgages are sky high. But is this the right option?

In this article, we’ll explore the benefits of renting out an HMO compared to a single-family home, to help you make a more informed decision.

What Is an HMO?

An HMO, or House in Multiple Occupation, is a property rented out by three or more tenants who are not from the same household (ie. not a family), but share facilities such as a kitchen or bathroom. HMOs are often occupied by students, young professionals or lower-income renters looking for more affordable accommodation.

You may need a mandatory HMO licence from the local authority, depending on where the property is, how many tenants are living in the property and the layout of the home.

The Benefits

1. Higher Rental Yields

The most significant benefit of HMOs is the potential for higher rental income. Renting individual rooms on a per-tenant basis usually generates more monthly income than letting the entire property to a single household.

Example:

A three-bedroom house let to one family might bring in £1,400 a month. But rented as an HMO to three individual tenants at £600 each, it could bring in £1,800.

This higher gross yield makes HMOs particularly appealing for landlords looking to maximise their return on investment.

2. Reduced Risk of Total Void Periods

In a single-family let, if the tenant moves out, you lose 100% of your rental income until the property is re-let. In an HMO, even if one tenant leaves, you’ll still have income from the remaining occupants.

This built-in income buffer reduces the impact of void periods and can offer more stability for you when managing your cash flow.

3. More Resilient to Market Fluctuations

HMOs often appeal to a specific segment of the rental market: students, young professionals and those on tighter budgets. In times of economic downturn or high interest rates, this market tends to remain strong, as demand for affordable shared housing typically increases.

On the other hand, single-family homes might experience more fluctuation based on family demand, relocation trends or school catchment areas.

4. Tax and Financial Advantages

Running an HMO can sometimes come with tax benefits. Since many HMOs qualify as “furnished holiday lets” or fall under different council tax arrangements (especially when let by the room), you may find tax structures that work to your advantage. Check with a qualified accountant before entering into the purchase if this is your goal.

Additionally, operating multiple units under one roof may help you benefit from economies of scale. For example, one mortgage, one utility bill (recovered in rent) and one insurance policy, but multiple income streams.

5. Better Use of Space

HMOs often make better use of space within a property. A traditional lounge or dining room can be repurposed as an additional bedroom, increasing capacity and income potential. You can also install en-suites or additional shared bathrooms to make rooms more appealing to tenants.

This flexibility can help optimise income without you needing to buy larger properties.

What About Single-Family Homes?

While HMOs offer clear financial advantages, single-family lets also come with their own set of benefits, particularly for landlords seeking a more hands-off approach.

Advantages of single-family lets:

• Easier to manage: One household, one tenancy agreement and fewer issues to resolve.

• Lower wear and tear: Families tend to stay longer and treat the home more like their own.

• Fewer legal requirements: HMOs come with stricter health and safety regulations, including mandatory licensing and inspections.

• Higher tenant retention: Families often stay longer due to schooling, jobs, or ties to the area.

• Easier to insure and finance: Mortgage lenders and insurers often view single lets as less risky and are more comfortable providing standard terms.

What to Consider Before Choosing an HMO

Before converting a property into an HMO, landlords should consider:

• Licensing requirements: HMOs with five or more people from more than one household require mandatory licensing. Some councils have additional licensing for smaller HMOs.

• Fire and safety regulations: More stringent rules apply, such as fire doors, escape routes and hardwired smoke detectors.

• Planning permission: Some areas require planning permission to convert a single-family home into an HMO under Article 4 Directions.

• Management intensity: HMOs require more hands-on management, including handling multiple tenants, maintaining communal areas and ensuring compliance.

For help managing your properties, whether HMOs, single-family let or any other type of property, speak to us. We can deliver a package of services that take on much of the admin of letting property, the maintenance, rent collection, compliance and more. Contact us today.