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What makes an HMO a good investment?

What is an HMO? Can you give me an example of an HMO?

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

Joe Taylor, Wharf’s HMO specialist, says that many of his clients start their HMO property portfolio by purchasing a 3-bedroom end of terrace which is then converted into a 6-bedroom HMO. They often go for higher specifications, for example, ensuites for each bedroom which add then add value to the property. In this way their overall equity investment is strengthened.

Is it difficult to get a loan for an HMO?

No. Obtaining a loan for an HMO does not increase the level of difficulty for a broker to source a property investment loan for you. There are extra nuances to bear in mind, but more lenders are offering competitive products.

Why is an HMO a good investment?

HMO can be a lucrative investment since it is high yielding. There is also solid demand for affordable housing which means that there is less chance of your property failing to be let.

How can I obtain a commercial valuation – a yield-based calculation – on my HMO, as opposed to a bricks and mortar valuation?

Investing in an HMO is different to investing in a single let. It is important for property investors to educate themselves and to work with brokers and lenders to determine if the property has been developed to an extent where it needs to be valued as a commercial property rather than as bricks and mortar.

If a property is a standard residential dwelling then a bricks and mortar valuation is common since a surveyor will view it as a residential property that happens to be let to multiple occupants. They consider the property’s condition, size and recent sale prices of comparable properties.

A commercial valuation  is less common and using this valuation option is dependent on the lenders criteria. The investor will have to provide information and evidence to the lender on a number of factors, including planning permission, location, and surveyor chosen.

An example of an HMO would be a conversion of a property into an 8-bedroom HMO. To calculate the value of an HMO on a commercial basis you can use the following formula:

(Gross Monthly Rent – Reasonable Operating Costs) * 12 / Yield

Formula supplied by HMO Hub (

What would you say that people could do to get the best chance of getting an HMO loan?

Communication is key. A broker gets information from the property investor. It’s important to have a good relationship with a solicitor – someone who is familiar with those investments. Once you have built relationships with a broker and a solicitor it makes things getting a loan much easier.

Conclusion: HMOs make great investments but like all investments it is important to seek quality professional advice. Similarly, communication between all parties is key to success. Please remember all investments can go up or down. Seek the relevant advice before making any investment.