Top HMO Styles To Maximise Your Returns: Student, Social, Senior Citizen Housing & More

Have you considered how changing population might shake up your HMO investment? As the saying goes, different strokes for different folks—and the same applies to shared living. Not all who are or will be using the HMO model share the same priorities or needs. So, how are you adapting your portfolio to withstand the market changes? Understand the strengths and challenges of different HMO types, from student properties to social housing and senior living, and how to shape your strategy for optimal success in the long term.

MULTIPLE OCCUPANCY: THE BASICS OF THE HMO INVESTMENT

Most property investors are familiar with the HMO rental model, which is relatively straightforward. When at least three people who aren’t family members share a home, including facilities like bathrooms and kitchens, that’s an HMO. Of course, most people will immediately associate the HMO with students and young professionals. Still, those are only two segments driving the market branded by affordability with social living.

THE HMO CLASSIFICATION: CRITERIA AND LICENSING

The Housing Act 2004 sets the rules for HMO properties. When advising clients, I emphasise three starting factors: occupancy by three or more tenants, multiple households, and shared facilities. To cover the essentials of this model, we must inevitably look at the licensing regulations since properties meeting the HMO criteria might require a licence to operate lawfully.
The local authority determines whether an HMO requires licensing, with three different types:

– Mandatory licensing applies to all HMOs with five or more occupants. HMOs classified as Sui Generis or housing over four tenants must obtain the council’s authorisation to operate.
– Selective licensing may apply to smaller HMOs (under five tenants), and this requirement is at the local council’s discretion.
– Additional licensing may apply for specific areas or types of HMOs when the council deems it necessary—for instance, to address broader local housing issues, such as poorly managed properties.

Operating unlicensed HMOs carries enormous risks for substantial financial losses and penalisations for landlords and property managers. The HMO licensing system helps local authorities manage standards in rental accommodation, ensuring safety and compliance with housing regulations. However, and this is crucial, even if an HMO doesn’t require a licence, all HMO landlords are bound by management regulations and upholding housing standards is a must.

GOING FROM TRADITIONAL LETS TO HMO INVESTMENT

The incentive driving investment in HMOs is that these properties can make significant financial returns, often exceeding those of traditional models such as single-tenancy. With the proper management, HMO landlords benefit from maximised rental yields, reduced risk exposure through multiple income streams, and strong demand, particularly in urban areas.

However, investors must stay aware of any changes in the regulatory requirements and not forget that proactive management is essential to maintain compliance and profitability in the long term.

THE HMO MARKET RANGE: NOT ALL HMOS ARE THE SAME

The UK’s property rental market is remarkably diverse, serving an array of tenant profiles and needs. These properties characteristically house students and young professionals in the most conventional types of HMOs. For instance, student HMOs are always in demand near universities, delivering consistent occupancy rates. Meanwhile, professional HMOs, often located near job hubs, appeal to young professionals and can typically command higher rents.

However, the demand for shared accommodation is expanding, and as a result, we can reach other markets, from co-living spaces and luxury HMOs to senior housing and more. We’ll explore each type in detail ahead.

WHICH ONE IS THE IDEAL HMO MODEL?

The popular student HMO is well-favoured among investors for its potential to deliver high returns. But this market isn’t everyone’s cup of tea or the only alternative. Besides, why stick to just one type of HMO when you can leverage diversification? An advantage of branching out is that different HMO styles can help weather market changes and tap into varied tenant demands—all within the ‘same’ high-yielding rental model.

Experienced investors tailor their portfolios to market conditions and investment goals. They understand the advantages of diversification and often mix their approach with steady performers and higher-yield opportunities.

Get started with five essential insights from seasoned property investors.

STUDENT HMOS

Characterised by their location near universities and colleges, these HMOs are tailored —from design to price range— to the housing needs of students. Yet, the standards for student accommodation have changed significantly over my years in property development.

These properties are budget-friendly and often include basic furnishings and utilities in the rent. However, modern student HMOs feature individual bedrooms with ensuites or private bathrooms alongside the shared common areas. Their features and strategic locations make them an attractive option for those looking to minimise living expenses and access public transportation.

THE PROS OF INVESTING IN STUDENT ACCOMMODATION

Student HMOs remain popular among new and experienced investors for various reasons. For starters, the budget-friendly market typically allows for lower initial investment. Yet, the economics of these rentals have further advantages. While the room-by-room letting is a high-yielding opportunity, education districts ensure the regular arrival of tenants, which helps keep vacancy rates low and rental income steady—what’s not to like?

BALANCING PROS AND CONS OF STUDENT HMOS

For some investors, the management of student accommodation is cause for concern. They are likely to have higher tenant turnover and increased wear and tear. However, good practices can offset the challenges, such as implementing preventative maintenance and setting clear house rules for tenants.

Effective management and design paired with strategic upgrades —think quality and durability in materials— can enhance property appeal and price band without spending a fortune. Plus, well-maintained properties and strong tenant-landlord relationships often attract tenants through word-of-mouth recommendations; this, in turn, helps reduce void periods and keep a stable income stream.

Yet, it isn’t a one-size-fits-all, and it merits paying attention to the variants within the student market. For instance, PhD students —typically in the band of young professionals— have specific needs and may prioritise differently than undergrads; for them, a premium worth considering might be an HMO with a garden and located near cultural hotspots and even one that incorporates high-end design.

One crucial aspect to remember about HMOs is that premium tenants are more inclined to pay for premium locations, for instance, in proximity to city centres and cultural or social attractions.

BOUTIQUE AND LUXURY HMOS

The HMO market has a growing demand for luxurious and well-appointed living spaces. These tenants are often young professionals or affluent students looking for comfort and premium amenities, willing to pay a higher rent for enhanced living experiences.

DESIGN AND COMPLIANCE CHALLENGES

Designing boutique HMOs involves distinctive challenges, as these properties must blend luxury with compliance. High-end finishes must meet the same stringent building codes and safety regulations as any HMO. The task is to provide luxury without compromising the practical aspects of legislation requirements, such as fire safety and sound insulation.

POTENTIAL RETURNS FROM BOUTIQUE HMO INVESTMENTS

Investing in boutique HMOs can yield higher returns due to premium rental rates. These properties attract tenants who value aesthetics and location over cost, helping towards lower tenant turnover and higher satisfaction rates. The investment requires a higher initial outlay for sophisticated design and top-quality finishes, but the potential for above-average rental income often justifies the costs.

HMOS FOR SENIOR CITIZENS

These HMOs offer seniors a chance to socialise and ward off loneliness, all while keeping costs down compared to pricey alternatives such as care facilities. It’s a setup that can benefit everyone —residents get affordable, community-focused living while investors serve a booming demographic.

The number of senior renters is set to rise over the next decade. Fast forward to 2040, and we might see a significant shift —about 24% of folks over 65 could be renting from private landlords. Can this trend mean growing opportunities for the HMO sector?

Research has found that more mature adults are considering sharing accommodation as an alternative; indications of a surge in demand among older and soon-to-retire tenants are already there, and the investment community is aware of this. According to a recent survey by Paragon, up to 50% of landlords are willing to adapt their rentals to suit elderly residents.

SPECIAL DESIGN AND COMPLIANCE CONSIDERATIONS

HMOs catering to the senior population should make provisions to combine independent living with community support. These properties appeal to those seeking autonomy and, true to the house-sharing model, social connections. Regarding location, attributes linked to comfort and safety are crucial, from nearby transportation options to access to shops and health facilities.

In terms of design, senior HMOs focus on safety, accessibility, and comfort. Adaptations such as wheelchair ramps, non-slip floors, lifts, and emergency call systems might become essential.

Further, compliance with housing regulations remains critical. Landlords must ensure these properties meet stringent legal standards. Should the market grant it, we could expect further controls tailored to suit HMO senior living to play a vital role for landlords.

Once more, the key to accessing the premium market is in the details. Consider top design and an adequate management style for convenience, as well as cleaning services for tenant satisfaction—borrowing from rental models such as serviced accommodation and aparthotels.

ADVANTAGES OF INVESTING IN HMOS FOR SENIOR LIVING

Senior HMOs are shaping up to be an excellent opportunity. As we know, they tap into a growing market need, but they also attract ideal tenants. It turns out older residents tend to prefer extended stays. This means more stable income and less turnover hassle for landlords.

And, as if this wasn’t enough, older tenants have a stellar reputation among landlords. According to Paragon’s findings, seniors are considered more respectful neighbours and highly reliable tenants. These advantages can translate to fewer complaints, smoother operations, and lower maintenance costs.

Time to define or refine your property strategy?

SOCIAL HOUSING & HMOS

Incorporating social housing into an HMO property can offer a stable and lucrative investment opportunity, especially given the growing demand for affordable housing solutions. By providing social housing, HMO landlords can minimise vacancy rates and ensure consistent cash flow, often supported by local government contracts through guaranteed rent arrangements.

The Housing Association Leasing Scheme (HALS) allows private landlords to lease their properties to housing associations, which then manage the properties and let them to social tenants. Landlords receive guaranteed rent for a number of years, minimising their risk of unpaid rent and void periods.

Some local councils have partnered with private landlords to provide stable housing solutions. Depending on the scheme, these collaborations can offer a range of benefits, from financial incentives to support and security. Landlords might receive free services through private agents, from tenant screening to property inspections and even mediation—avoiding costly eviction actions.

Similarly, organisations like Forward Trust work with private landlords to offer housing for vulnerable groups. They guarantee rental income while managing the property and ensuring that utilities and council tax are paid.

In addition, properties adapted for social housing can qualify for funding or grants to improve housing standards, bringing renovation costs down and enhancing property value. Successful projects like the one detailed in the Axxco Carlisle case study highlight the appeal of social housing in HMO setups, illustrating the potential financial and social returns from such investments.

SUPPORTED LIVING & HMOS

Supported HMOs provide a specialised residential setting for individuals who require assistance due to disabilities, mental health issues, or age-related concerns but still wish to live independently. From self-contained units to shared accommodation, these homes are designed to offer a balance between independence and support, such as assistance with daily living tasks and emergencies.

While private landlords can rent their properties for supported living accommodation, the regulations are stringent, focusing on the safety and accessibility of the environment. These properties must comply with both HMO housing and care standards, which may include adaptations such as wider doorways, ramps, and specialised bathroom facilities.

Like social housing, supported accommodation schemes typically come from local authorities, nationwide initiatives, and housing associations. Organisations like EHSL, Forward Trust, Response, Birch Housing, and Inspire Housing actively collaborate with private landlords, leasing properties and overseeing day-to-day management, thus benefiting both tenants and landlords.

Investment in supported living HMOs can be both socially beneficial and financially rewarding. There is a growing demand for such accommodations, and investors can potentially qualify for government incentives to support vulnerable populations.

FOUR ALTERNATIVES TO HMO INVESTMENT

HMOs are a staple investment in the rental market, but other strategies are worth considering. Whether it’s about diversifying your portfolio, mitigating risks or unlocking new revenue streams, these alternatives can offer outstanding benefits.

1. SERVICED ACCOMMODATION

Serviced accommodation refers to fully furnished properties focusing on short- and long-term lets. These properties often have amenities like those typical of hotels, such as cleaning services and linen changes. They cater to business travellers, tourists, and anyone looking for temporary residence but with the comforts of home.

Similarly to HMOs, investing in serviced accommodation can yield higher returns than traditional rentals due to premium pricing, though it requires more active management.

2. CO-LIVING SPACES

Co-living spaces are designed to cater to modern living, offering tenants private bedrooms with shared common areas like kitchens, lounges and, often, workspaces. These properties promote a community environment, appealing especially to young professionals and digital nomads who value social interaction and networking opportunities.

While it’s often packed under the same business model as HMOs, there are unique advantages and potential that sets co-living and HMO apart. A key differentiator is that the co-living space typically targets a higher-end market focusing on community and lifestyle rather than affordable accommodation.

3. HOLIDAY LETS

Holiday lets, including properties listed on platforms like Airbnb, are a dynamic investment model. They typically follow a short-term model and can yield higher per-night rental rates than long-term leases. This market segment appeals primarily to tourists and travellers seeking flexible, home-like accommodation.

The operational model for holiday lets involves dynamic pricing strategies, heightened customer service, and higher turnover of guests, which can increase management but also profitability. One crucial aspect to remember is the prospect of heightening controls and regulations, a change that’s still developing.

4. FLATS: CONVERTING HOUSES INTO FLATS

Converting a house into flats is one of the most rewarding strategies for property investors. Segmenting one larger property into smaller, self-contained units delivers substantial benefits enhanced with flexibility. Such a conversion can significantly increase the rental yield as flats often attract a different demographic, including young professionals and small families looking for privacy and affordability. Learn more about the process and benefits of converting houses into flats.

Each alternative requires a clear strategy, tailored design, and market understanding to balance opportunity with risk. While outside the HMO sector, they, too, must align with relevant regulatory and building standards.

STAY AHEAD IN THE CHANGING HMO MARKET

To stay competitive in the HMO market, investors must keep up with the latest regulatory changes, market trends, and tenant preferences. Consider strategic solutions that add value, such as enhanced privacy, bespoke amenities, or energy-efficiency and eco-friendly features—these can distinguish your offerings in a crowded market. I also encourage my clients to get comfortable with continuous education, which often brings more benefits than imagined. Lastly, partnering with property experts specialising in HMOs or your market of choice can provide a critical edge.

INNOVATIONS IN HMO DESIGN AND MANAGEMENT

Innovation in HMO design and management is rapidly transforming the market. Smart technology integration, such as automated energy systems, advanced software and security features, is becoming standard. Moreover, there’s a push towards creating more sustainable and community-focused living spaces that appeal to environmentally conscious tenants. These innovations enhance quality of life and increase property efficiency, setting new standards in the HMO market.

7 TAKEAWAYS ON TOP HMO EXAMPLES

1. The HMO sector continues growing, driven by the increasing demand for affordable and flexible housing solutions.
2. This trend presents a lucrative opportunity for investors looking to capitalise on the higher rental yields and stable occupancy rates linked to HMO properties.
3. As the younger demographic seeks cost-effective living arrangements, demand for different shared living alternatives is also expanding.
4. Student accommodations can be lucrative but come with higher turnover.
5. Senior living facilities may provide steadier income yet require more initial modifications and ongoing care.
6. The need for properties adapted for assisted, social or senior living. HMOs could become even more appealing to a broader, more diversified market.
7. Crucially, your decision to invest in one or another type of HMO should be informed by thorough market research and a clear understanding of housing regulations.

Don’t get tripped up by compliance; our team is on hand to help you navigate the HMO rules and regulations.

GET EXPERT ADVICE FOR YOUR HMO INVESTMENTS

Let’s prepare your property portfolio to resist market fluctuations. Whether you’re considering blending rental models or HMO types to balance your portfolio, we can help you develop a more resilient approach. Get in touch to discuss your strategy today.

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Disclaimer

The material provided is for general informational purposes only and should not be considered legal or financial advice. We encourage you to seek professional advice before making decisions.