HMO yield maths that actually holds up after costs

Most HMO deals are sold on gross yield, which is simply annual rent divided by purchase price. It is a useful screen and a poor decision tool, because HMOs carry costs that single lets do not: bills, cleaning, higher wear, licensing and genuinely higher management input.

Take a six-bed professional share in Selly Oak at 260,000 pounds, letting at 575 pounds per room per month inclusive. That is 41,400 pounds of gross annual rent, a headline 15.9 per cent gross yield. Nobody nets that.

Deduct bills at roughly 3,900 pounds for a well-insulated six-bed, fortnightly communal cleaning at 1,560, maintenance and compliance reserve at 2,400, licensing amortised at 400, insurance at 700, and a realistic void allowance of four per cent at 1,656.

That leaves about 30,784 pounds before finance and management. On the same purchase price you are looking at roughly 11.8 per cent net of operating costs, which is still an excellent return, and considerably more honest than the 15.9 per cent on the particulars.

The important comparison is not managed versus unmanaged fees in isolation, it is total net position. Self-managing landlords typically run 3-5 per cent higher voids and pay retail rates on reactive maintenance, which in this example costs more than the management fee it saves.

Model every deal on net, stress test it at a two-room vacancy for two months, and only then decide whether the numbers work. If they still work under stress, you have a good asset.