Here’s what landlords should compare before deciding between an HMO and a single let.
If you own a four or five-bedroom property, one of the biggest decisions is whether to rent it as a family home or operate it as a House in Multiple Occupation (HMO).
There isn’t one right answer.
The better option depends on the property, the local rental market, the income you want, how much management you’re comfortable with, and how much risk you want to carry.
Here are the main things we would look at before deciding.
1. Which Produces More Rental Income?
Let’s start with the obvious – rent. With a family let, you usually have one household paying one monthly rent. With an HMO, each room may generate its own rent, so the gross monthly income can be significantly higher. But gross income is not the same as profit. With an HMO, the landlord will often be responsible for costs such as utilities, broadband, communal cleaning and potentially higher maintenance and management costs.
So instead of asking:
“Which option gives me the highest rent?”
Ask:
“Which option gives me the strongest net return after all of the additional costs?”
For example, a five-bedroom HMO may produce more rent overall than a family let, but the difference becomes less attractive if the additional bills, licensing requirements, management and maintenance significantly increase your costs.
2. Which Is Easier to Let in Manchester? Is there a demand for a certain type of housing?
A large family property can sometimes take longer to let. There are naturally fewer households looking for four or five-bedroom homes than there are couples or small families looking for one or two-bedroom properties. That does not necessarily make a family let a poor option. Once you find the right household, they may stay for several years, particularly where children are settled into schools and the property suits the family long term.
An HMO works differently. You are filling individual rooms rather than trying to find one household that needs the whole property, which can create a larger pool of potential tenants. However, that usually comes with more frequent tenant changes.
3. HMO vs Family Let: Which Carries More Risk?
The income risk is also different. With a single let, one household is responsible for the entire rent. If that household experiences serious financial difficulty and the rent stops being paid, a landlord can potentially lose most or all of the property’s rental income during that period. Non-payment could mean 100% lost income.
With an HMO, the income is spread across several tenants. If one room becomes vacant or one tenant falls into arrears, the remaining rooms may continue producing income. That does not eliminate risk — but it spreads it. For some landlords, that diversification is one of the biggest attractions of an HMO. Non-payment could mean 20 or 25% lost income. The other rooms can carry on producing income while you work on eviction and reletting of that one room.
4. How Much Management Does an HMO Require?
HMOs generally experience heavier use. More occupants usually means more use of kitchens, bathrooms, appliances, doors and communal areas. There is generally more turnover, and if your HMO is not up to standard with the current market, you could also face longer void periods.
A family may treat the property more like a long-term home and therefore create less turnover-related wear, although that obviously depends on the individual tenants.
This is why tenant selection, inspections and preventative maintenance matter so much when renting your investment property. At Santosha, we ensure our prospective tenants go through thorough referencing, not just affordability checks.
5. Decide how much management you actually want
An HMO is normally a more active management model, and management is a great option if you want to be hands-off. Instead of one tenancy and one household, you would manage several individual tenants, room turnovers, communal areas, utilities, maintenance issues and more frequent communication.
A single-family let is generally simpler from an operational point of view. That means the higher HMO income should not be looked at in isolation.
6. Understand the compliance difference
This is one of the biggest areas landlords need to investigate before deciding.
In England, a property is generally considered an HMO where at least three tenants from more than one household share facilities such as a kitchen or bathroom. A mandatory HMO licence is generally required where five or more people from two or more households occupy the property and share facilities. Local councils can also operate additional or selective licensing schemes, so landlords should always check the requirements for the specific property because each council in Manchester has different rules.
An HMO can also bring additional requirements around fire safety, property standards, room sizes, management and inspections. So before comparing rents, check whether the property can legally and practically operate as the type of HMO you are considering.
So which is better?
Well, that really depends on you and what’s most important to you and the risk tolerance you are comfortable with. There is no wrong or right answer here, so don’t be fooled by the stories online.
A family let may suit a landlord looking for simpler management, potentially longer-term occupancy, less turnover and less compliance.
An HMO may suit a landlord prepared to accept more active management and compliance in exchange for potentially stronger income and a more diversified rent roll.
Thinking about converting or letting a larger property?
At Santosha Property Services, we help landlords and investors across Manchester assess their options and can provide a complete hands-off approach to management, including support with refurbishment projects.
If you have a four- or five-bedroom or more and you’re unsure which rental strategy makes the most sense, feel free to get in touch for a market valuation, and we can talk through the details. Alternatively, if you need some specific advice relating to your situation, you can also book a paid consultation with me directly.