HMO Viability Calculator
Calculate the financial viability of HMO (House in Multiple Occupation) investments. Analyze cashflow, yields, and returns for multi-let properties.
Related Calculators
About the HMO Viability Calculator
What it does and how it helps you
The HMO Viability Calculator helps UK property investors analyse House in Multiple Occupation investments. Calculate monthly cashflow per room, gross and net yields, cash-on-cash returns, and DSCR to determine whether an HMO deal meets your investment criteria.
How It Works
Understanding the calculation method
A House in Multiple Occupation (HMO) is a property rented by three or more tenants who form more than one household and share facilities like bathrooms or kitchens. HMOs typically generate higher yields than standard buy-to-let properties but require more management and face stricter regulations.
Understanding HMO Economics
HMO profitability fundamentally differs from single-let BTL. Instead of one rent payment, you receive multiple room rents—creating higher gross income from the same property. A 4-bed house might rent for £1,200/month as a family let, but achieve £2,200/month (£550/room) as an HMO.
Key HMO Metrics Explained
Cashflow Per Room: This is the critical HMO metric. After all costs and mortgage, divide your monthly cashflow by the number of rooms. Target £75-150+ per room per month. Below £50/room, the deal becomes marginal once you account for the extra management time.
Net Yield: HMOs should achieve 8-12% net yield to compensate for higher management burden. Below 6% net, a single-let BTL might be more efficient. Our calculator deducts all operating costs including utilities, management, maintenance, licensing, and insurance.
DSCR (Debt Service Coverage Ratio): HMO lenders typically require 1.25-1.45x coverage. This means your Net Operating Income must be 125-145% of your annual mortgage payment. Our calculator uses interest-only financing as this is standard for HMO mortgages.
Operating Cost Assumptions
Our calculator includes realistic HMO-specific costs:
- Management: 10-15% of rent (HMO management is more intensive than BTL) - Utilities: All bills inclusive is standard for HMOs, budgeted per room - HMO Licence: £800-3,000 depending on council (5-year licence) - Insurance: HMO-specific cover is more expensive (£1,000-2,000/year) - Maintenance: 8-10% of rent for HMO wear and tear - Cleaning: Communal areas require regular cleaning (£100-200/month) - Voids: HMOs have lower void rates (4-6%) but turnover is higher
HMO Deal Rating Criteria
We rate HMO deals based on three metrics combined:
- Strong: £100+/room/month, 8%+ net yield, 1.45+ DSCR - Good: £75+/room/month, 6%+ net yield, 1.25+ DSCR - Marginal: £50+/room/month, 5%+ net yield, 1.0+ DSCR - Poor: Below marginal thresholds - likely loss-making
The Rule of 200
Experienced HMO investors use the 'Rule of 200': your total investment divided by 200 should roughly equal your monthly profit target. A £200,000 all-in investment should aim for £1,000/month cashflow. This provides decent returns while leaving buffer for unexpected costs.
When to use this calculator
Use this calculator when evaluating HMO purchase opportunities, comparing multi-let versus single-let strategies, planning HMO conversions, or assessing whether an existing property could work as an HMO. It's essential for understanding true profitability after all HMO-specific costs and whether the deal meets your minimum return thresholds.
Frequently Asked Questions
Common questions about this calculator