One of the most common strategic decisions property investors face is whether to let to a single household or to convert the property into a house in multiple occupation. Both models have their advocates, and both can produce strong returns in the right location.
This article compares HMOs and single lets across the key metrics that matter to investors, with practical examples from the South Coast market.
How the two models differ
A single let means one tenancy agreement for one household. The property is rented to a family, a couple, or individuals who share the property as a single household unit.
A house in multiple occupation (HMO) means three or more unrelated tenants sharing facilities. Each tenant typically has their own room and shares the kitchen, bathroom, and living spaces. Each pays rent individually, usually with bills included.
The most common HMO in the Portsmouth market is a four-bedroom or five-bedroom terraced house with a licensed HMO structure, rented to professionals or students at GBP 475 to GBP 650 per room per month.
Comparing the returns
The headline advantage of HMOs is yield. A four-bedroom HMO purchased for GBP 250,000 with total monthly rent of GBP 2,400 produces a gross yield of 11.5 per cent. The same property as a single let renting for GBP 1,200 per month produces a yield of 5.8 per cent.
But yield is not profit. The operating costs of an HMO are higher:
– Void costs: Higher turnover means more void periods. If one room is empty for two weeks between tenants, that is lost income.
– Management: HMOs require more active management. More tenants mean more maintenance issues, more communication, and more compliance demands.
– Bills: Most HMO landlords include bills, which means exposure to energy price increases.
– Licensing: HMO licences cost GBP 500 to GBP 1,500 per property per year depending on the local authority.
– Council tax: HMO landlords are typically responsible for council tax, not the tenants.
When you account for these costs, the net yield advantage of HMOs narrows but remains attractive. A well-operated HMO in Portsmouth should produce a net yield of 8 to 12 per cent compared to 4 to 6 per cent for a single let in the same area.
The management intensity difference
This is the most important consideration. Single lets require relatively little management once the tenant is in place. An annual check, occasional maintenance, and deposit protection at the end of the tenancy. With a good letting agent, you might not hear about the property for months at a time.
HMOs are operationally intensive. You are managing multiple tenancies with different start and end dates. You handle bills, room inspections, common area cleaning, and tenant disputes. Each tenant turnover means marketing a room, conducting viewings, referencing new tenants, and updating the licence.
The difference in management time is roughly three to five hours per month for a single let versus ten to fifteen hours for a four-bed HMO.
Regulatory requirements
HMOs are more heavily regulated. A mandatory HMO licence is required for properties occupied by five or more people forming two or more households. Some local authorities apply additional licensing to smaller HMOs.
In Portsmouth, additional HMO licensing covers certain wards. You must check the current licensing requirements before converting any property into an HMO. Non-compliance can result in fines of up to GBP 30,000 or a banning order.
HMO properties must also meet specific space standards, fire safety requirements, and amenity provisions. The initial fit-out cost is typically higher than for a single let — expect GBP 5,000 to GBP 15,000 for fire doors, alarms, escape routes, and kitchen/bathroom upgrades.
Financing considerations
BTL mortgages are widely available. HMO mortgages are specialist products offered by fewer lenders, usually at higher interest rates and with higher deposit requirements.
Typical HMO mortgage requirements:
– Minimum 25 per cent deposit, often 30 per cent
– Interest rate 0.5 to 1.5 per cent higher than standard BTL
– Lenders may require evidence of HMO experience
– Valuation basis is rental income, not comparable sales
What works on the South Coast
Portsmouth has strong HMO demand driven by the university and the professional workforce at the naval base, QA Hospital, and the city centre businesses. The higher density of terraced housing in postcodes PO1 to PO5 makes these areas well-suited to HMO conversion.
Single lets perform well across a wider geographic area, including Fareham, Gosport, Havant, and the Isle of Wight. The lower management requirement makes them a better fit for remote investors or those with limited time.
Which model should you choose?
Choose single lets if:
– You want a relatively passive investment
– You are investing remotely or have limited time
– You prefer lower but more predictable returns
– You are building a portfolio that can be managed alongside other commitments
Choose HMOs if:
– You want higher cash flow and are willing to work for it
– You are based locally or have a good management team
– You have experience or are willing to invest time learning the regulatory requirements
– You want to maximise the income from a single property
A balanced approach
Many successful portfolio landlords use both models. A core of single lets provides stable, passive income. One or two HMOs boost the overall portfolio yield. The single lets pay the bills on quiet months. The HMOs generate the returns that fund the next acquisition.
At Xelox Properties, we source both single let and HMO opportunities for our investors. If you are unsure which model fits your strategy, we can talk through your goals and recommend the right approach.
Contact Xelox Properties today to arrange a no-obligation conversation about how we can help with your property investment goals.