With landlords facing tighter margins, houses in multiple occupation (HMOs) have emerged as a high-yield alternative to traditional buy-to-let (BTL) properties. Offering greater rental income potential but also higher management demands, HMOs are becoming an increasingly attractive — yet complex — investment option.
According to new data from COHO, the average HMO in England and Wales is valued at £293,197, generating an impressive £29,750 in annual income. That equates to an average monthly rental income of nearly £2,480, far higher than the average BTL return.
In London, the returns are even higher, with the average HMO bringing in over £40,000 per year, although the average property price also rises to £660,227.
By comparison, standard BTLs generate an average annual rental income of £18,312, based on Rightmove’s average monthly rent of £1,526. The average BTL property is priced at around £270,000, although regional disparities can significantly affect returns.
Recent figures from Fleet Mortgages put the average BTL yield at 7.4%, with returns climbing to 9.2% in the North East and 8.4% in the North West. In contrast, London landlords achieve average yields of 6%, and 6.5% in the South East.
Why landlords are turning to HMOs
The appeal of HMOs lies in their ability to maximise rental income per property, as multiple tenants rent separate rooms under individual tenancy agreements. This structure helps reduce void periods, as the property is unlikely to be entirely empty at any time.
With rising mortgage costs and more stringent tax rules, such as the scrapping of full mortgage interest relief in 2021, landlords are looking for ways to boost net returns — and HMOs can offer just that.
The HMO sector is currently estimated to be worth £78 billion, generating £6.3 billion in annual rental income, across 182,554 properties in England and Wales.
The risks and responsibilities
However, higher yields come with greater responsibilities. HMOs are subject to stricter regulatory compliance, including:
• Licensing requirements (particularly for large HMOs with 5+ tenants)
• Minimum room size standards
• Fire safety, health, and sanitation regulations
Many local authorities have introduced selective licensing schemes, and landlords need to be aware of local rules that may affect their properties.
Tenancy turnover also tends to be higher in HMOs, as tenants are less likely to stay long-term. This increases the need for active management — one reason many HMO landlords choose to hire specialist letting agents.
Additionally, mortgage products for HMOs are typically more expensive and less widely available than standard BTL loans, although lender interest is increasing in response to rising demand.
Should you invest in an HMO?
If you’re a landlord looking to increase rental yields and are prepared to handle higher management intensity and compliance obligations, HMOs can be a lucrative strategy — especially in areas with strong demand from students, young professionals or transient workers.
However, if you’re seeking lower-maintenance investments or want to avoid regulatory complexity, a standard buy-to-let may offer a better fit — especially with falling mortgage rates improving margins in the traditional rental market.
Ultimately, the choice depends on your investment goals, risk appetite, and ability to manage compliance. For many landlords, diversifying between BTLs and HMOs could strike the right balance.
