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  • HMO & Multi-Lets

    The Real Life Costs of Running an HMO

    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?

    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.

    Be 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.

    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.


    Mike Stenhouse Host of The Inside Property Investing Podcast

    Excellent post Mike, thank you for this. Smile

    If you are not using a lettings agent, you should put a value to your own TIME.

    I have noticed that many people in property do not value their own time and this causes them to spend it inefficiently.

    Some other costs (although not all "monthly" in nature):

    Fuel and car running costs for visiting the property and undertaking viewings.

    Conversion costs to convert to an HMO.

    Advertising room costs.

    Licensing costs.

    Those are a few I can think of, off the top of my head.


    I definitely agree with valuing one's time, however, unless you are in a profession where you charge by the hour/day, how exactly do you put a price on one's time?


    How much do you / would you get paid for a day as an employee doing whatever you are qualified to do? That's how much a day of your time is worth. An hour is worth +/- 1/8 of that. 

    So let's say you value your time at £240/day. An hour is then worth £30.

    Applying this:

    Leaving aside issues of "control" (ie not wanting to delegate to others), if you expect your management of the HMO to take up 3 hours/week, that's 13h/pcm. Or £390. If agent fees (for doing the same job) are higher than this, it makes sense to do the work youself. If not, an agent should do it (unless you have free time that you are willig to spend - and value at less than £30ph).

    If your time is worth only £120pd it makes sense to do more yourself. And if it's worth £500pd then makes sense to outsource more.


    Excellent and honest post.  The utilities appear a little light but that is due to Mike's planning for energy efficient and the fact the house was only 2 beds.  In a larger, Victorian/Edwardian unmodernised house with high ceilings and an inefficient boiler and no insulation, the utilites will double.  Water meters are also an issue and one of our HMOs on a meter has twice the bill of one without.  Even I was shocked at the amount we spend on cleaning each year after filing our latest accounts.

    Since the Gold Rush, we've been cautioning new investors about the real cost of HMOs and how it ties in with their day jobs and existing committments.  If you want passive, hands off investment, buy a one or two bed property, don't skimp on the maintenance and hand it over to a repuatble letting agent.  For HMOs to really bring in the money, they need to be mortgage free (or low mortgage), energy efficient, constantly full and well run.  Whilst I have 3 biological children, I have another 36 "children" who are not nearly as switched on to real life as my own!  Having said that, my kids have grown up in the world of HMOs and they have vowed (a) never to be a landlord of HMOs and (b) not to live on benefits.

    The other cautionary note I would say to investors is to be wary of the promises of being able to give up the day job.  I'm almost 10 years into HMOs and can see that I could, possibly, just about bring up a family on the income alone provided I didn't need to shell out for a major cost such as a roof.  Our HMOs will be our pension in 10 years time but they still won't be "hands off" and hopefully the kids will have found their own income stream by then so my own living costs will be lower.

    Don't be put off HMOs, just be realistic.  If your current position gives you job satisfaction and time with your family, don't rock the boat and put yourself under lots of pressure - buy some passive lets.  If you're looking for a challenge, enjoy a bit of risk, are willing to learn and you have good interpersonal skills, then you will do really well in the HMO market.  There is plenty of demand and a limited supply of good accommodation - an essential ingredient for any business.


    Hi Mike,

    A great post with some useful points for anybody considering investing in an HMO.

    The only additional expense I had was the initial fee for a licence @ £584.00 for the first year.  Future years will be much cheaper.

    You are right about your gas and electric.  To give you a vague idea my 4 bed is currently £155.00 and my 9 bed is £220.00 although I am still in my first year of the latter so this could change.  Both are provided by First Utility Smile

    Just out of interest, which provider do you use?


    Andy Walker

    Creator of monoperty.com

    Follow Me: YouTube Snapchat Facebook Twitter

    One major impediment to HMO profitability is the massive financial risk of councils introducing individual council tax banding.

    Apparently the VOA allows this to occur

    It is just that most councils have determined not to introduce such individual council tax banding

    But such councils could easily change their minds as their budgets come under increasing pressure

    For that reason alone I wouldn't be a HMO LL if you paid me!


    Paul, you're right that individual councils can choose to give each room it's own council tax banding, but threats like this exist with every investment strategy.

    All rentals are going to be hammered by the change to tax relief on mortgage interest payments unless you have no mortgage.

    Rent to rent and lease option operators could be the next group to be hit by no win, no fee solicitors (I'm not advocating rent to rent, just making a statement).

    Anyone investing in any second property has an additional 3% stamp duty to factor into their figures now. 

    I think ruling out HMOs entirely because you may incur additional costs in future is a rather strange statement to make. Let's assume they introduce this nationally for all HMOs, and as such no HMO is financially viable (I think that's the stage you're saying we'd get to if this happens), we take a massive step backwards in terms of the amount of housing that's available. I don't see any long term incentive for councils to act like this. It may happen in certain places over the short term, but personally I don't see it as a massive long term risk. 


    Mike Stenhouse Host of The Inside Property Investing Podcast

    I agree with your sentiments

    But I think you overlook the stupidity of councils

    If they need to increase council tax revenues they won't give two hoots about reducing the supply of HMO and the financial detriment it causes LL, tenants and themselves alike!!!!

    The Council Tax dept won't care that the Housing Options Dept has to pay out vast funds on TA if HMO disappear

    The Council will just require even more Council Tax from wherever it can raise it.

    Single let dwellings whilst not immune from CT increases are at least treated the same as a normal owner occupied

    Yes C24 is a hazard no one could ever have reasonably exoected, but individual CT banding for HMO is a Sword of Damocles too far!!

    I say good luck to you HMO LL you have my utmost respect in wishing to aspire or remain HMO LL

    Me I'm a LL coward!!

    Just not prepared to take such a HMO gamble on the whim of a CT dept!!


    Great post, another edition to Vanessa’s feedback is the cost of the electrical test required for your HMO license (still recommended if license is not required) which cost me approx. £200 and last for 5 years and the cost of your yearly gas safety certificate


    Great post. We find our costs for six bedroom HMOs, semi detached, comes to a total of £12,000 a year including agent's fees, but excluding mortgage interest. It is the same in Peterborough or Cambridge for us.


    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.