Houses of Multiple Occupancy (HMO) continue to be the buzzword in the property industry, despite increased discussions around nationwide Article 4 roll out, council tax banding on individual rooms, and a glut of properties coming onto the market.

The reason for this gold rush is that the figures thrown around by investors are enough to make anyone giddy with excitement. ‘Retire on one deal!’ or ‘Make £1,500 per property per month!’ do sound appealing, and whether you’re looking at it from a rental income, yield, or ROI perspective, the numbers are very appealing.

So what’s the truth behind all of the top line figures? Are HMOs as lucrative as the plethora of training courses would have you believe?

HMO Gold Rush
As with the California Gold Rush, there’s good money to be made by investing in HMOs, but there are some serious risks as well.

We’ve recently finished our latest HMO Project – turning a 2 bedroom semi-detached house into a 6 bedroom licensed HMO – and now that it’s fully tenanted and been running for a few months, I thought I’d share the breakdown of monthly running costs we have to deduct before we get to see how much money we’re really making from our HMO.

So how much does it cost to run an HMO?

Some of these running costs are fixed, and some are variable, some are paid monthly, and some annually, but we feel these should all be taken into consideration for the majority of HMO properties.

Mortgage Payments

Mortgage payments go without saying really, unless of course you’re fortunate enough to own the property outright.  These will vary from house to house depending on level of borrowing, lender, type of finance (commercial or residential etc), but at the moment we base our calculations for deal analysis at 5.5% APR and a 75% LTV (loan to value).

In practice, this specific 6 bedroom HMO is a little different. We considered commercial lending, but found an 85% LTV product with Kent Reliance at 5.39%.

The house was valued at £155,000, meaning we would be borrowing ~£132,000.

Monthly Mortgage Payments – £606.57

Letting Agent

Opinions are split on whether you should use a letting agency or not to manage your property. On the one hand, nobody will care about your property quite as much as you do, but on the other hand I’m sure you didn’t become a property investor to replace one job with another.

I fall into the latter camp, so use a letting agent to manage our portfolio (even if I own that letting agency…). Rates for HMO management would typically be 10-15% of monthly rent collected, which may or may not be subject to VAT on top of that depending on who you use.

I charge myself 10%, which is a slightly discounted rate compared to what we charge typical customers.

Monthly Letting Agent Payments – £280


Having the right insurance in place is critical. Make sure the broker you speak to know the house will be rented, that it’s an HMO, there are locks on the bedroom doors, whether or not it needs a license etc.

There is nothing worse than having paying for insurance only to find out when you need it that the policy isn’t valid. Similarly, having a properly insured building can get you out of a seriously bad situation.

One of our landlords had a house that burnt down re-built to his specification (designed from the ground up as an HMO) as it was destroyed during the renovation process.

We added this HMO to an existing Buy To Let insurance policy we already had, which results in a pretty good rate.

Monthly Insurance Payments – £15.14


Gas, electricity and water can again vary massively from property to property depending on the size of the house, number of tenants, type of tenants, energy efficiency and so on.

This HMO was taken back to brick and had a new roof so should be pretty well insulated. Most tenants are out of the house during the day as well so there’s less demand on heating and hot water from 9am-5pm. If you have tenants who don’t work or work shifts, you might find your heating is running 24/7.

We’re also fortunate that this house doesn’t have a water meter, so it’s based on average usage for this size of house rather than actual consumption. If you have a water meter, your costs could be significantly higher.

I imagine the Gas/Electricity payments will be the ones that change the most over the coming months as we submit more meter readings and get a better feel for how much energy is being used. Unfortunately, I think these figures will only go up.

Monthly Gas/Electricity Payments – £125.05

Monthly Water Payments – £32.17

Council Tax

Thankfully I don’t live in an area where the council tax valuation office are enforcing Band A council tax ratings on individual rooms within an HMO. This is a serious risk in many areas already though, and seems to be spreading.

Local councils can now enforce council tax however they like really, and many are using these powers to class each bedroom as an individual dwelling for the purposes of council tax. It does seem to be more common for self-contained rooms where they have bathroom and cooking facilities within the bedroom, but it’s worth checking what your local council are doing before embarking on a project as this could add hundreds of pounds per month to your costs (if not thousands!).

Our property is in council tax band B, making the payment quite low.

Monthly Council Tax Payments – £107.95

Broadband & TV Packages

I suppose in theory broadband is a discretionary cost, but I doubt you’d be getting many professional tenants or students moving into a house that didn’t offer broadband. Maslow's Hierarchy of Needs in an HMOBe aware that good broadband is classed as an essential in our houses, almost more so that heat and running water!

TV packages are more of an added extra, and it really depends on who your target market is and what your competition are offering. Freeview is pretty good these days, and services like NetFlix are starting to make TV redundant to younger generations.

We put in a basic Virgin Media package, which is a step up from freeview and comes with a set top box that allows recording of live TV etc. We’ve noticed some of our competitors are offering full sports/movie packages though, and even some subscription services like NetFlix & Apple TV, so we might need to up our game in future.

Monthly Virgin Media Payments – £32.99

TV Licence

This is a slightly tricky one. In theory, every room of an HMO should have it’s own licence if they have their own TV. In practice, we provide one licence for the communal TV that we provide, and advise the tenants that they will need their own TV licence if they choose to watch TV in their own room as well.

So far this has worked out OK, but keep in mind the official advice is to get licences for each room (and if each room does have its own licence, you don’t need a further one for the communal area).

Monthly TV Licence Payments – £12.13


Cleaners are an absolute must in any shared house. Without them, the standard of the house can quickly deteriorate and tenants tempers can flare as arguments escalate over whose turn it is to scrub the toilet.

As well as keeping the communal areas clean and tidy, they also act as a first line of defence in spotting potential maintenance issues, safety hazards etc and reporting back to the landlord or agent.

Depending on the quality of housing you provide, the size and the prices you charge, your cleaning could vary from a weekly deep clean to a monthly run around with a vacuum and a mop.

We started off with fortnightly cleans in our HMOs, but moved to weekly pretty quickly as we found it kept the tenants happier, didn’t cost us much extra, and reduced maintenance costs for things like resealing shower trays and replacing communal carpets.

Our cleaners charge £10 per hour, and in this house they do 2 hours per week.

Monthly Cleaning Payments – £80


Everyone has their own way of estimating what maintenance and voids will be. I don’t think this is so much about guessing how much it will cost you on any given month, but more about getting into the mindset of putting money aside for when things do go wrong.

You might have a 6 month period where you’ve got full occupancy and not a single issue, then all of a sudden 2 tenants move out, their rooms need redecorated (fair wear and tear so no deposit deductions to pay for it) and the boiler goes on the blink.

Putting aside a set amount every month helps balance these costly months with the ones where everything is going to plan. We typically allocate 5% for voids and 5% for maintenance of the gross rent. We find this gives us a good buffer when things do go wrong, and any excess makes for a good Christmas night out!

Monthly Maintenance/Void Payments – £280

As far as recurring costs go, that’s about it. If you assess a deal and it still makes sense after deducting these costs, you should be doing OK.

This is how our latest HMO stacks up with all the running costs deducted:

Recurring HMO Running Costs

What else do you class as a monthly running cost of your HMO? Do your figures resemble ours or differ in any particular areas? I’d love to hear your thoughts and feedback in the comments below.

If you want to download a free copy of our HMO Deal Analysis spreadsheet that we use to analyse every deal then you can get your copy here.


9 Responses

  1. Very helpful. But the most intriguing question for me is: how can you find a property valued £155k that will return £2,800 a month?

    1. This was around 2 years ago when we bought it, but deals like this still exist if you create the right product. Personally, we invest in the North West, but I know others getting similar results all across the UK.

    1. Was looking at buying a property near my folks in Southampton, but the price would be around £500k and even splitting it down, squeezing out the max number of rooms, I cannot make it work to generate a yield. Compare that with a property in Loughborough where I have a daughter as a student and it is like comparing chalk and cheese. Your numbers are very sobering. We have some property let out at the moment, but only one set up as a proper HMO.

  2. Just found this and very informative, but what is your occupancy rate…obviously not 100% throughout the year. Is it best to work on around 70% or more or less?

    1. We aim for 90-95% occupancy in a typical year. Covid dropped that down to about 80%, we’re back at 85% now and slowly heading back towards our target.

      We include a 10% allowance for voids and maintenance which usually works out about right.

  3. There is no cost that seems to take into consideration that boilers, white goods, kitchens and bathrooms need replacing. A boiler on average lasts 10 years, white goods 5 years and new kitchen and bathroom heavily used 10 years? They are considerable costs that can add at least £100 per month to build into a sink fund. What do others do to pay these costs?

    1. Hi Lisa, check our last paragraph/heading. We put aside 10% per month for maintenance and void periods, so £280/month on this house. But I agree with you that they’re often forgotten about and should be considered throughout the life of the project.

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