HMO properties have become a popular route for investors looking to increase rental income by making better use of the space a property has to offer. By letting rooms individually, rather than renting the whole house to a single tenant, HMOs offer the chance to generate stronger returns from the same footprint.
But with that extra income comes more responsibility, stricter legal standards, and a greater need to get things right from the start. Not every property is cut out for HMO use, and choosing the wrong one can be a very costly mistake.
If you’re planning to invest in shared accommodation or simply exploring the best HMO opportunities in your area, here’s what you need to be looking for from the start.
Location Matters
You’ve heard it before. Location, location, location! And it’s no different with HMO properties so it’s no surprise when we tell your HMO investment all boils down to where it’s located. You’re not just looking for any busy area; you’re looking for one where rental demand is strong, stable, and consistent all year round. That usually means being close to major employers, universities, hospitals, or transport hubs. Just think about places where people move for work or study and need flexible, well-priced housing.
In cities like Leeds, areas near the city centre or with good transport links stand out the most. Places like Headingley, Hyde Park, and Burley continue to attract students and young professionals, while suburbs like Chapel Allerton or Meanwood appeal to those looking for something a bit quieter, but still within easy reach of work.
You’ll also want to keep an eye on the local rental supply. If the area is already saturated with HMOs, you’ll face tougher competition and potentially longer voids which just adds more pressure to keep your rent low. A good location is one where demand outweighs supply and where yield potential is backed by long-term growth.
Property Layout and Size
It’s essential that the property comprises a layout that’s ideal for shared living. Get this wrong and you could be setting yourself up for unnecessary problems. Space is one of the biggest factors in a successful HMO investment, and you need to bear in mind that each bedroom must meet the minimum size requirements of 6.51m² for a single room. On top of that, there also needs to be enough shared facilities to meet strict licensing standards.
But beyond ticking all the legal boxes, you’ve then got to think about practical. Is there enough space for a decent-sized kitchen and a shared living area? Could you potentially add en-suites to to the bedrooms to increase its rental value? The trick here is to fully assess whether or not the property allows for these changes or whether the existing floorplan is too restrictive. Properties with large bedrooms, additional lounges or dining rooms often provide more flexibility for conversion and as a result, tend to be easier to let.
Don’t overlook storage either. Tenants living in HMOs need space for clothes, food, and the usual day-to-day items and if your property doesn’t offer it, they’ll find one that does. If you can combine generous space with a practical layout that keeps everyone comfortable, you’ll be able to stand out in what is already a fairly crowded market.
Compliance and Regulations
HMO properties come with a much higher level of regulation than standard buy-to-lets, and failing to meet the requirements can quickly land you in some serious trouble. The most important step is to check whether the property needs a mandatory HMO licence. This is usually required when a property is let to five or more people from two or more households.
On top of that, some areas in Leeds have additional rules through Article 4 directions which can restrict your ability to convert a house into an HMO without proper planning permission. It’s easy to get caught out if you don’t know the area or if you assume rules are the same everywhere. Always check thoroughly before making any buying decisions.
It doesn’t stop there, unfortunately. There are a bunch of other compliance regulations you’ll need to fall in line with. You’ll need mains-wired smoke alarms, fire doors, clear escape routes, and emergency lighting. Your properties EPC ratings also need to be up to standard, and you must meet the minimum housing health and safety standards. Remember, this isn’t a case of simply ticking a box. These regulations will directly impact how safe, compliant, and lettable your property is, so getting it wrong isn’t just expensive, it’s putting your reputation at risk too.
Tenant Appeal and Features
The best HMO investments are the ones that go way beyond simply meeting the regulations. You want to offer the tenants something that feels like home. That all starts with the basics: reliable high-speed internet, a clean and modern kitchen, and well-kept bathrooms. If you're targeting young professionals, things like en-suite bathrooms, secure access, and off-street parking can really tip the balance in your favour.
Communal areas should feel open and inviting, and not simply an afterthought. A shared lounge or kitchen with enough space for everyone makes a big difference when it comes to attracting and retaining tenants. Details like built-in storage, private workspaces, and quality furnishings often go a long way, especially in competitive markets.
Tenants who feel comfortable are more likely to stay longer and treat the place with respect. If your HMO looks tired, cramped, or hard to live in, you can expect a much higher turnover and void periods. A few upfront improvements can easily pay off over time in both higher rent and better tenant satisfaction.
Financial Considerations
While HMOs can offer stronger yields than single lets, you need to think beyond the initial numbers, as conversion costs, licensing fees, and ongoing maintenance can eat into your profits if you don’t plan properly. Before you commit, run the figures carefully. Don’t just look at the best-case scenarios and factor in realistic outcomes that take into account void periods, repairs, and management costs.
A well-located, fully licensed Student/Profession HMO might generate 8–10% gross yield (excluding bills) and a room by room professional HMO 11-15%, but only if it’s managed properly and let consistently. If you’re taking on a conversion project, build in a buffer for delays and unexpected costs and don’t forget the cost of compliance either, especially when it comes to fire safety and EPC requirements.
Long-term success comes from balancing high rental income with sustainable running costs. Cheap properties in the wrong area or with hidden issues can quickly become a drain on your time and finances. A solid HMO investment is one where the numbers still work even when things don’t go to plan.
