As property owners explore different ways to maximise the potential of their properties, letting to more than one occupant is becoming an increasingly appealing option. Whether you’re seeking to increase rental yields or adapt to the growing demand for shared housing, options such as HMOs, multi-let, and multifamily properties can be highly profitable alternatives to the traditional single let. With the rising cost of living and higher mortgage rates, many landlords are considering shared rental accommodation to offset expenses and make the most of their property portfolios.
In this article, we’ll explore the differences between three popular types of property arrangements: HMO (House in Multiple Occupation), multi-let properties, and multifamily homes. Each offers its own advantages, but understanding the differences is essential for ensuring you choose the right approach for your property. While they all share similarities, each type of property caters to different markets and comes with distinct legal, regulatory, and management considerations.
What is a HMO?
A House in Multiple Occupation (HMO) refers to a property that is rented by three or more tenants who are not from the same household (i.e., they are not family members). In an HMO, each tenant typically rents a private room but shares communal spaces such as the kitchen, bathroom, or living room.
HMOs are often found in university towns, near hospitals, or in busy cities, where demand for affordable, flexible housing is high. The appeal of HMOs for property owners is their potential for a higher rental income, as multiple tenants contribute to the total rent, which can exceed what would be achievable with a single-family rental.
A property is typically classified as a large HMO if it is rented to five or more tenants forming more than one household, with shared facilities. HMOs require specific licensing and come with stringent regulatory obligations for landlords, particularly concerning safety standards, such as fire safety and adequate living space. Local councils issue HMO licences, and regulations may vary, so it’s essential to consult with your local authority before converting your property into an HMO.
Key features of an HMO:
- At least three tenants from more than one household
- Shared facilities (e.g., kitchen, bathroom, living rooms)
- Licensing required for large HMOs (5 or more tenants)
- Typically found in high-demand, affordable housing markets
What is a Multi-Let Property?
A multi-let property shares some similarities with an HMO but differs in scale and complexity. Multi-let properties typically involve multiple tenants renting individual rooms or units within the same building, often with shared communal areas. Unlike HMOs, multi-let properties may not always require a licence, depending on the number of tenants and the local council’s requirements.
Multi-let properties are a popular option near airports, commuter towns, or city centres, where demand for short-term lets or room-by-room rentals is high. These properties are attractive to landlords looking to boost rental income while avoiding the stricter regulations imposed on larger HMOs.
Key features of a multi-let property:
- Multiple tenants, often renting individual rooms
- May not always require an HMO licence, depending on the number of tenants and local regulations
- Shared communal spaces
- Commonly offered with all-inclusive rent
What is a Multifamily Property?
A multifamily property is a residential building designed to house multiple separate living units under one roof, often for long-term tenancy. These units could be flats or apartments, each with its own private kitchen, bathroom, and living space, in contrast to the shared facilities of HMOs and multi-let properties.
Multifamily properties tend to be larger, purpose-built developments designed for individual households, catering to a wide range of tenants. Unlike HMOs and multi-let properties, a multi-family property is typically let on a longer-term basis and does not require the shared living arrangements seen in other types of multi-occupancy properties.
Multi family real estate like this is not subject to the same licensing regulations as HMOs, as each unit operates as an independent household. These types of properties are commonly found in suburban areas or city fringes and can appeal to a wide range of tenants, including families, professionals, and retirees. For property owners, multifamily properties can provide steady rental income with potentially less tenant turnover than shared accommodations like HMOs.
Key features of a multifamily property:
- Separate, self-contained units within one building
- Designed for individual households
- Often used for long-term tenancy agreements
- Does not involve shared facilities
What is the Difference Between HMO, Multi-Let Property, and Multifamily Property?
While all three types of properties cater to multiple occupants, they differ significantly in their setup, management, and tenant profiles.
Occupancy Structure:
- HMOs and multi-let properties involve tenants sharing communal spaces, but the tenants are independent of one another.
- Multifamily properties consist of self-contained units with private facilities, with each unit serving as a separate dwelling.
Licensing and Regulations:
- HMOs typically require a licence and are subject to strict regulations, particularly around health and safety.
- Multi-let properties may not always require a licence, depending on the number of tenants and the local council’s guidelines.
- Multifamily properties generally do not require the same level of licensing but must still meet all building and safety regulations.
Tenant Profiles:
- HMOs and multi-let properties often appeal to students, young professionals, and short-term renters due to the affordability and flexibility they offer.
- Multifamily properties are more suited to families, couples, or individuals seeking long-term accommodation with their own private facilities.
Management Complexity:
- Managing HMOs and multi-let properties can be more complex due to the higher tenant turnover, shared spaces, and regulatory requirements.
- Multifamily properties, while larger in scale, often have lower turnover and fewer shared areas, making them simpler to manage in some respects.
Considerations and Requirements for Properties with Multiple Occupancies
Managing properties with multiple occupants comes with additional responsibilities which can be complex and time-consuming. Property owners must ensure their buildings remain safe, clean, and compliant with all regulations. From arranging adequate property insurance cover to providing property maintenance and management, there are several factors to consider. Let’s look at the key areas:
Costs
When considering HMOs, multi-let, or multifamily properties, it’s essential to factor in costs like ongoing maintenance, utilities, and potential renovation or conversion work to meet legal standards. Multi-let properties often have all-inclusive bills, which cover utilities and make them attractive to tenants, but this also increases the landlord’s financial responsibilities.
Location
Prime locations for HMO and multi-let properties are often near universities, hospitals, airports, and commuter towns. These areas tend to have a higher demand for shared housing or short-term lets. Commuter towns and large cities also present excellent opportunities for multifamily properties, especially if you’re looking to attract professionals and families.
Tenant Movement
In multi-let and HMO properties, there tends to be higher tenant turnover compared to multifamily properties. Tenants may stay for shorter periods, requiring more frequent marketing and management of vacancies. With multifamily homes, long-term tenants are more common, offering a stable income stream but potentially lower returns per unit.
Legal and Regulatory Requirements
HMO Licensing
If you own or are considering converting a property into an HMO, be aware that licensing is mandatory in most cases. Some multi-let properties may also require one, depending on local regulations. Contact your local council to determine whether your property qualifies as an HMO and what regulations you must follow.
Planning Permission
You may need to apply for specific planning permissions for certain conversions, such as moving from a C3 (family dwelling) to C4 (HMO) or Sui Generis (for larger HMOs). Failing to secure the correct permissions can result in hefty fines.
Insurance
Whether you’re renting out a multi-let, HMO, or multifamily property, having the right insurance policy is essential. Ensure you have appropriate insurance coverage for your multi-occupancy properties, as standard landlord insurance may not be sufficient – speak with a specialist to find a suitable policy that covers multiple occupants and any associated risks.