HMO investment opportunities: finding high quality HMOs for your portfolio in the wild

Looking for great, current HMO investment opportunities? So are many property investors, developers and landlords. HMO property investment has surged in popularity in recent years. They offer significantly higher rental yields than traditional buy-to-let properties and holiday lets.

HMO landlords benefit in multiple ways:

• Rental demand is high: UK private rents hit £1,343 in July 2025. The average rental income per room is £561 a month. People can’t afford to live on their own any more so they’re looking for alternatives.
• Priced out: Britain last saw truly affordable property prices back in the 1990s. Even ex-local council property now fetches £250,000 in North East England. In the 90s, that would have bought you a mansion in many parts of the UK. House prices seemingly accelerate away from student and young professional reach every year.
• Fast and high income stream: HMOs achieve higher rental yields even though rent per head is cheaper. You have multiple tenants contributing rent every month so you have fewer void periods. And when one tenant in your house of six leaves, the other five still pay you.
• Short and long term capital growth: HMOs have extremely strong capital growth potential. When you convert a standard family home or flat into an HMO investment property, its value jumps on average 13%, according to Excellion Capital. In some parts of the UK, the added value can be 50%.

In this article, we show you how to spot HMO property investment opportunities all around you. We explain the pros and cons of buying an existing HMO and six different approaches to conversion. You’ll also read about multiple case studies where HMO Architects has taken a client’s vision and turned them into reality.

Buying an existing HMO: advantages and disadvantages

Many HMO investors appreciate the advantages and shortcuts buying an existing HMO brings. For example, you’ll know that it already meets local council guidelines and has achieved regulatory compliance with the Housing Act. This is especially if it has its mandatory HMO licensing (or additional HMO licensing where applicable) in place.

Many may be in Article 4 Direction areas, often the locations of highest HMO demand and rental growth. This delivers a stronger return on investments, higher yields and makes finding HMO mortgages easier, despite the higher purchase prices of each property.

Tenant sourcing is easier too in these high demand areas. You’ll appeal strongly to students, young professionals, and key workers looking for affordable housing options. So, while there’ll be a lower upside in potential capital appreciation because many of the improvements have already been made, the potential reward is a more stable rental income.

Buying an existing HMO: example

• Kilburn High Road, London (9 units): Kilburn Road was already operating as a seven-room HMO but we saw the potential to increase that to nine when the owner approached us. We achieved it, with each room having its own en-suite. We found the extra space via a dormer and basement conversion. Our architects respected the heritage of the property during the renovation work. Our team also won consent for our client after three failed planning applications. The value of the property went up 50% from £1,200,000 to £1,800,000 and the rent from £6,000 pcm to £11,200.

Buying an existing HMO: pros

• Quick income: You’ll turn over money straight away by inheriting sitting tenants from the current owner. You can use that income from rent collections as cash flow to fund your renovation costs, if that’s what you’re planning.
• Known planning status: There is no risk of failing the change-of-use risk process. Buyer beware however. Make sure the seller’s paperwork backs up the use class and check with the council or via a CLEUD, if needed.
• Real trading numbers: You have proof of existing income and costs that you can provide to lenders. This evidence should make it easier to secure finance.

Buying an existing HMO: cons

• HMO licence not transferrable: You must apply for your own HMO licence (if applicable). There is no guarantee the council will approve your application.
• Compliance gaps: HMO standards change all the time, like bedroom sizes in 2018 and smoke and CO alarms in 2022. Check with an architect that the property, as is, from room sizes to shared communal facilities meets the current guidelines or this will be a major future expense.
• Inherited tenancy constraints: The rents sitting tenants pay may be below market value with profit eroded further by variable utilities costs covered by rent. If the deposits weren’t handled correctly by the previous owner and they don’t transfer to your scheme on ownership, you may have to find the money yourself.

C3 to C4 conversion: advantages and disadvantages

Converting a single-family house (C3) into a small HMO (C4) is often the quickest and lowest-risk way to enter the market. Outside Article 4 areas, you can usually avoid full planning permission and proceed with your project under permitted development rules.

Works on many of these types of conversion are normally tight because the internal layout was originally designed as a dwelling. You can improve the property by refreshing kitchens and bathrooms and look for ways to reconfigure the layout to squeeze in an extra bedroom. Most of the time, you’re not dealing with complex build factors like structural changes, new drainage runs or high-cost mechanical systems.

For newer developers, investors, and landlords, this is probably the best way in equal to buying an existing HMO. Finding HMO mortgages can be difficult but with this approach, you’re buying a simpler asset that lenders already understand and value. That can make HMO mortgages easier to secure, especially if you’re working with a mainstream or buy-to-let lender. You also have the opportunity to convert back the C3 private home dwelling use case if you decide you want to live there.

C3 to C4 conversion: examples

• Beaufort Ave, London (4 units): We turned this London three-bed C3 into a four-bed C4. Our architects also upgraded it to EPC rating C, in advance of future legislation expected in 2030. All this was achieved without any reconfigurations like extensions, loft conversions or en-suites. The owner saw the value of the property rise to £900,000 from £550 and rental quadruple to £5,600pcm from £1,400.
• Durward Street, London (5 units): Our client wanted this well-situated London mid-terrace turned into a five-bed large HMO. It was to be their primary residence for now with plans to turn it into an investment property later. Despite its location in an Article 4 area, we managed to add a ground-floor extension and construct an additional floor. Its value rose from £650,000 to £1.2m and expected rental income was £2,500pcm.
• Earls Crescent, London (4 units): Working for a charity client, we converted a semi-detached residential house into four-bedroom shared accommodation. Our goal was to keep costs down for the client by retaining the original structure and foregoing the cost of extensions. We made accessibility a standard feature throughout and improved the energy rating to EPC C. Property value rose from £550,000 to £750,000 and rental income from £1,800pcm to £4,800.
• Flat 107, London (4 units): We converted a maisonette above a print shop on St Albans Road, located within a conservation area, into a stylish and modern four-bedroom HMO. The property itself was unique in the area and the council resisted all of our client’s requests for an extension. Working within these constraints, we retained the building’s original features and created a property that benefits now from high tenant demand. The value of our client’s property rose from £550,000 to £950,000 and rental tripled from £1,600pcm to £4,800.
• Fortescue Road, London (6 units): Our client wanted to convert their three-bed terrace into a six-bed HMO while bringing the property up to the same standard as others in the same street. We secured planning permission for a ground-floor extension and added a dormer extension under permitted development. The project was an excellent success from our client’s perspective as the property value went from £900,000 to £1.6m and rent increased more-than-fivehold to £7,200pcm from its previous £1,400.
• Grange Road, London (4 units): Working on a limited budget of £100,000, our client wanted to convert their terraced house in a good HMO investment area into a shared home. We used many of the existing accessibility features to create accommodation that would work for a variety of tenants with differing mobility needs. The outcome was an inclusive home that saw its potential rental reach £2,500pcm while the property itself increased in value from £85,000 to £260,000.
• Gunhild Close, Cambridge (6 units): In this project, we upgraded an existing residential property into a high-spec, six-bedroom HMO. After thorough market research, we discovered our client’s target audience valued en-suites and tea points so we made sure they were included. A new loft dormer created extra space, and thermal upgrades improved the property’s comfort and energy rating. The property is now surpassing local average HMO yields with an expected monthly rent of £2,500pcm.
• Soham Road, London (5 units): We successfully delivered a five-bedroom HMO on a strict budget in a restrictive Article 4 area with this project. The key to delivering for the client was smart space planning. We redesigned the staircase to unlock more room on the first floor and added a small extension to create a decent lounge. As a result, the property increased in value £450,000 to £750,000 and expected rental nearly quadrupled from £1,600pcm to £4,500.
• South Bank Road, Liverpool (6 units): We reinvented a neglected terraced house as a clean, modern six-bedroom HMO with this project. The client budget was tight but we kept within it, completely reorganising the layout, renewing all the services and finishing it to a standard higher than local competing rental property. The result not only lifted the look of the street but also created a property with strong cashflow, increasing in value from £85,000 to £280,000 in just eight months. Rental went up from £550pcm to £2,800.

C3 to C4 conversion: pros

• Fast turnaround: In the right location and with the right property, you can convert almost straight away, shortening the gap between purchase and rental income.
• Lower capital spend: Compared with all other options, except for buying an existing HMO, this reduces the cost of entry into the market and means, on renovation or redecoration projects, you need the lowest contingency budget.
• More finance and resale options: Most buy-to-let lenders accept small HMOs so there’s a wider range of purchase and refinancing facilities available to you.

C3 to C4 conversion: cons

• Limited rental upside: Some leave smaller HMOs out of their investment strategy because rental income is capped because you can only accommodate up to six people.
• Pressure on shared space: While it may be straightforward to find an extra bedroom in a family home, making sure there’s enough communal spaces and space for services (like bins, bikes and laundry space) can be a challenge. Minimum room size is crucial for planning and licensing purposes.
• Planning headwinds: If a C3 property is in an Article 4 Direction area, you may have to apply for planning permission, like with larger HMOs. Although not planning-related, many councils have introduced additional HMO licensing which means you’ll still need a licence even if you don’t hit the national threshold for mandatory HMO licensing.

C4 to sui generis HMO conversion: advantages and disadvantages

Converting a C4 small HMO to a sui generis HMO means that instead of just renting to two, three or more tenants, you can now rent to at least seven. This is a fundamental change in how the asset works and the level of passive income it can deliver you.

With more rooms and facilities, you can systematise more of the running of HMOs. It makes scheduled cleaning, smart metering, zoned access, and planned maintenance easier to justify and scale across the property. That’s because the headcount supports bulk pricing, routine management contracts and better economies of scale. You’re more of a professional landlord than an amateur one at this level.

Successfully converting a C4 to a sui generis is hard. There are easier options, as we cover in this article. But if you pull it off, it strengthens your position with lenders, valuers and JV partners alike on future potential deals.

C4 sui generis conversion: pros

• Higher income potential: In larger properties, there is more room for amenities which can drive rental prices higher. En-suites and higher-quality finishes consistently let for more, and larger HMOs make an all-en-suite layout viable. Ask your architect about in-room conveniences to see if that can drive prices higher.
• More control over layout: The uplift in rental and the income that brings gives you the funding and justification to rework corridors, stack services, and zone quiet and social areas properly. This makes the property nicer to live in and easier to maintain.
• Valuation flexibility: The market and financiers often value larger HMOs with strong occupancy levels and high monthly rent collections on their income, not just sales comparables. This means a higher exit price or more equity to leverage.

C4 sui generis conversion: cons

• Full planning required: You’ll need to apply for full planning permission and ready yourself for objections from planners and neighbours that mean you constantly need to tweak your plans.
• Tighter compliance rules: The rules surrounding fire safety, escape routes, hot water and electrics, door specs and soundproofing are all a lot stricter.
• Higher management load: More tenants means more to do from ensuring house rules are followed to how quickly you respond to complaints. Take your eye off the ball and that will increase the possibility of churn.

C3 to sui generis HMO conversion: advantages and disadvantages

You buy at the standard property price and add in HMO value. Starting from a C3 means you avoid paying the uplift in property already configured for HMO usage.

Less so for newer developers but experienced developers can pay for the purchase and the works with mainstream light refurb or heavy refurb bridging. They can then refinance to an HMO mortgage once they have Building Consent and the correct licences.

You can use these funds to pre-load the project for approval. For example, wide frontages for bins and bikes, side or rear access, usable loft headroom and off street parking help with policy and neighbours.

You can design everything from first principles and submit a coherent planning scheme. Unlike with a C4 to sui generis conversion where you’re working around existing tenants and the previous landlord’s setup, you have the freedom to complete the build as you want it first time around without working around occupiers.

C3 to sui generis: examples

• Court Way, London (9 units): We converted this family home into a large, seven-bed shared house. A major part of the work was replanning the layout to provide a better mix of rooms and to stack the property’s services. The project was successful, resulting in an uplift to £1.6m in value from £600,000 and a more-than-fivefold increase in rental to £9,800pcm from £1,800.
• Elderbush Inn, Swansea (12 units): Our architects transformed this large home into a 12-bedroom through an extensive but cost-driven project. Without making any major structural changes, we added more rooms in the loft, managed to include en-suites in as many bathrooms as possible and established a terrace for socialising. The property has nearly quadrupled in value to £900,000 from £250,000 and the rent increased from £2,200pcm to £7,200.
• Grasmere Avenue, London (10 units): This was a three-bedroom end-terrace home ripe for renovation and its owner wanted to turn it into a high-yielding 10-bed HMO to take advantage of rising demand in the area. Each room has its own en-suite and kitchenette with built-in appliances with some also featuring a washing machine. This turned out to be a very smart investment decision as the value of the property soared to £2.2m from its previous £800,000. Rent went from £2,500pcm to £11,200.
• Grove Lane, Ipswich (7 units): This was a four-bed end-terrace whose owners had ambitions to create a sizable monthly income for himself by transforming the property into a seven-bed HMO. We achieved this through clever internal planning and extensions to the rear, loft and ground floor. The house is now worth £450,000 (up from £250,000) and the rental income tripled to £4,200 pcm.
• Hobart Road, Cambridge (7 units): For this seven-person HMO conversion, the goal was to create a harmonious living space for the tenants. We did this by making sure that their private bedroom space was sufficient while ensuring there was a decent communal lounge for socialising. There were some difficult constraints with the property, one of which was fire escape requirements which we overcame with a simple staircase design. The property now appeals to a diverse tenant base which has resulted in rents increasing from £2,200pcm to £8,400. At the same time, the property value has risen from £550,000 to £950,000.
• Kilburn High Road, London (8 units): This project involved converting an elegant and historic townhouse into an eight-person HMO. Our brief was to combine the heritage with the modern to create a property that appeals to a higher-end clientele. We achieved that, together with successfully navigating a complex fire protection strategy to ensure compliance. The value of the property rose 50% to £1.8m and rent nearly doubled from £6,000pcm to £11,200.
• Redmead Road, London (7 units): Our client wanted to turn this two-storey end-of-terrace house into a seven-bed HMO by installing ground and first-floor extensions, plus a dormer in the loft. The goal for each bedroom was to be spacious, well-lit, and comfortable that would generate strong rental yields. The owner saw a rise in the value of the property to £950,000 from £555,000 and a six-fold increase in rental income to £8,400pcm from £1,400.
• Whippendel Road, London (7 units): This was a conversion from a three-bedroom terrace into a seven-bed HMO with en-suites for every room. To make it work, we started aiming for a six-bed HMO to fall under the permitted development rules, moving onto seven when everything was in place. We added a dormer and rear extension to create substantial extra space for the tenants. The project saw the property value rise to £850,000 from £550,000 and rent more than tripled from £1,400pcm to £5,250.

C3 to sui generis: pros

• Higher lettable area: Start with a standard family home layout and remodel it to maximise room size and reduce or eliminate dead areas like long corridors or underused dining spaces. Build in back-to-back en-suites and stacked risers to free more space up for bedrooms so you can raise rent without extending.
• Energy and comfort advantage: Use this opportunity to get the property ready for the expected minimum EPC C grading coming in 2028-2030. This will add to upfront costs but better insulation, quieter fans and smart heating will reduce utility bills, particularly important for bills-inclusive rent setups.
• Future expansion ready: You can design with the future in mind so you can add extra room with dormers and extension with load paths, access requirements and risers already in place.

C3 to sui generis: cons

• Building Control involvement: Changing a three- or four-bed house into a large HMO is almost certain to require substantial renovation and reconfiguration meaning that the council’s Buildings Control team will want to be involved. Many C3 to C4 conversions won’t require this.
• Higher cost and more unknowns: Because you’re often doubling the number of people living there, you may uncover hidden issues like shallow drains, inadequate foundations or outdated electrics, which drive up cost and delay.
• Cash flow pressure: You carry holding costs all throughout the build. You’ll need a larger contingency budget and it may be a good idea to arrange additional finance in advance that you can access if needed. This pushes up the overall project costs though.

Converting commercial property into a C4 HMO: advantages and disadvantages

With the number of boarded-up premises in town and city centres increasing, many local councils view conversion into HMOs favourably. This is for two reasons. First, having customers in closer proximity to retail and business outlets may stimulate trade. Second, they can generate more revenue from an HMO than they can from vacant commercial premises.

Shops and offices often come with generous layouts, wide frontages and deep plans. They’re much easier to adapt to than tight terraced housing. Many sit in central locations with easy access to local amenities, stations, hospitals and high streets. Tenants move to properties like these to be close to work, transport links, and round-the-corner shops that support daily life.

From a development point of view, you avoid the common objection of taking a family home out of use, which can soften resistance from planners or neighbours.

Commercial property to HMO: examples

• Devonshire Road, East Sussex (22 units): This three storey building, once home to NatWest bank, is in a great location on a prominent corner along a commercial road in the town center. We turned this historic property, full of period features, into a 22-bedroom HMO for our client, a war veterans charity. Our design included en-suites in every room and a generous communal area and kitchen. The property value jumped to £1.32m from its initial £500,000 and the rent increased from £4,500pcm to £11,000, delivering consistent income streams to the charity for years to come.
• Fletcher Street, Manchester (12 units): This was a former popular nightclub in the hear of Manchester. In addition to lightening the inside, we also updated the façade to give it a fresh look that suited its surroundings. Working together with the structural engineer, our team overcame the issue of weak foundations to deliver a bright, welcoming HMO with large, comfortable rooms ready for residents. The property now generates £129,600 each year in rent and the value of the building has soared from £260,000 to £1.2m.
• Guildford Road, Lightwater (10 units): Our client spotted the opportunity this former Italian restaurant and tattoo parlour offers straight away. His vision was to turn it into a 10-room HMO for high-end professionals. This required careful negotiation and handling skills with the council who were helpful during the process. The property now generates £168,000 in rental income and its value has increased from £750,000 to £1.8m

Commercial property to HMO: pros

• More space to work with: Inside, wide layouts and deep floorplates make it easier to lay out good-sized rooms and shared areas. Externally, you can meet plant, bin and bike storage needs without having to compromise on usable garden or access space.
• Cash flow easing: If applicable, phase the conversion floor by floor, letting finished rooms early while work continues elsewhere. That helps manage cash flow and reduce void exposure during the build.
• Easier planning narrative: Turning a commercial building that’s empty or underused can actively help councils meet their goal for housing provision.

Commercial property to HMO: cons

• Natural light: In larger buildings, you may struggle to get enough daylight or decent views. Lightwells can alleviate some of those issues but poor views can make rooms harder to let.
• Structural surprises: Older buildings often need major updates to meet fire, acoustic and safety rules. Many office blocks prove to be unsuitable for conversion because of deep internal spans, fixed cores or outdated services that don’t meet modern housing standards.
• Fewer finance options: Lenders can be cautious with change-of-use conversions. You’ll likely need more upfront equity and stronger evidence on demand, design and exit plans.

C2 into a sui generis HMO: advantages and disadvantages

C2 (residential buildings) include care homes, former hostels and boarding schools. These types of buildings often come with wide corridors, compliant staircases and good circulation. Internal layouts often already meet or exceed key standards on fire escape, access and room size. Market analysis shows that these are factors that many renters consider when choosing a property.

In these types of building, you can achieve a high room count (en-suite rooms with generous proportions). If the base layout fits your HMO strategy, you can create a durable, high-yield asset with less building risk than starting from a standard house.

C2 into a sui generis HMO: examples

• Britten Road, Portsmouth (14 units): We transformed this care home into a 14-bed large HMO for professionals. Every room was to be en-suite and the client wanted us to keep structural changes to a minimum for budgetary reasons. Working with the council, initially concerned about losing a care home, our team steered the project through. The value of the property has since risen to £1.2m from its previous £750,000 and now achieves an annual rent of £151,200.
• Eastern Avenue, London (9 units): We converted a complex C2 foster care home into a well-managed, nine-bedroom shared home. The comfort and happiness of the tenants was forefront in our client’s mind so we balanced the bedroom sizes, gave the property an appealing layout and provided an attractive communal lounge. The value of the property nearly doubled, going to £1.2m from an initial £650,000, and it now achieves an annual rental income of £151,200.

C2 into a sui generis HMO: pros

• Staff and service rooms repurposed: Turn old offices, store cupboards and nurse stations into space for management, cleaning supplies and plant. Use the remaining areas for bedrooms and communal space.
• Multiple stair cores and exits: Extra stairwells let you split the building by floor or wing, easing movement and reducing noise or friction between different households.
• Inclusive room offer: Lifts, wide doors and level access let you create wheelchair-friendly rooms and wet rooms. That expands your tenant pool and may encourage social services and NHS departments to rent rooms from you.

C2 into a sui generis HMO: cons

• Protection-of-community-use hurdle: Councils often resist the loss of supported housing or care provision and this can be an insurmountable hurdle occasionally.
• Institutional fabric: In medical settings, the doors, fixtures, fittings and finishings may feel more like a hospital than a home. This may push up decoration costs substantially.
• Over-sized systems: You may find older fire alarms, ducting and other controls that are hard to maintain and expensive to run that were built for higher-intensity use. You’ll likely need to rezone, resize, retest or even replace systems before letting out to tenants.

HMO Architects: start, or continue, your HMO investment journey with us

The HMO market continues to grow across the UK. The key is finding the right property and then renovating and redecorating it for your target audience. Houses in multiple occupation are not going anywhere soon, even if the government achieves its ambitious target of 1.5m new homes by 2030.

If you want to launch a new or build up an existing HMO portfolio, get in touch with HMO Architects. We’re there from start to finish during your projects. Here is a selection of the range of services we offer:

• Investment strategy calls: Speak directly with Ryan Windsor. Our Investment Direct has consulted on over 2,200 projects for clients. He started building his own extensive property portfolio when he was 17 so he’s been on the journey you’re on.
• Feasibility study: Get pre-buy and design feasibility studies from Architect Director Giovanni Patania and his team. Find out if your project is viable or whether you should spend your time finding the next opportunity. We can provide a full feasibility report for your project, too.
• End-to-end service: Access a range of key services under one roof. We provide architecture design and planning to building regs and interior design. The experts you need are all in one place.
• Wider network: Plug into our pool of trusted professionals. Access experts ranging from specialist builders to property finance brokers when you need them.

Check out our detailed HMO legal FAQ and find out more about the true cost of unlicensed HMOs on our website.

View our range of development finance case studies to see how we’ve helped clients turn their ideas into sound investments. Read customer stories on HMO, flat, holiday let and housing projects.For further information, call 01223 776 997 or email us direct.