The Cost of Running an HMO in 2026: Full Breakdown

A professionally managed five-bedroom HMO in South East London costs around £24,180 a year (£2,015 a month) to run before mortgage payments and tax, based on the worked example in this guide. The example includes utilities, council tax, insurance, licensing, compliance, cleaning, maintenance, voids and management fees. Costs vary depending on the property, occupancy, energy use and whether it is self-managed.

This guide breaks down the main HMO running costs in 2026 and uses a realistic five-bedroom South East London example to show the income left once everything is paid.

Already own an HMO in South East London? Sturstons reviews current running costs, management arrangements and rental performance for local landlords. Speak to the HMO management team on 0208 108 5974.

What are the main costs of running an HMO?

The main costs of running an HMO are household bills, council tax, insurance, licensing, safety compliance, cleaning, maintenance, tenant turnover and management. Some are predictable monthly expenses; others need an annual contingency budget.

Conversion and refurbishment costs sit outside this list. The table covers ongoing operation only; one-off improvement works belong in a separate capital budget.

Example monthly cost of a five-bedroom HMO

The table below shows an illustrative example of the monthly running costs of a fully occupied five-bedroom HMO in South East London, based on typical 2025 prices.

The four rows marked ‘monthly reserve’ are budgeting reserves rather than fixed monthly bills. Actual spending varies: some months involve no repairs at all, while a boiler failure or an empty room brings a larger cost without warning. Setting aside these amounts each month builds a realistic annual estimate.

The management fee is an illustrative figure calculated at 12% of gross rent. Agents quote fees with and without VAT, and the difference matters: 12% plus VAT is 14.4% of your rent, so confirm whether any quoted rate includes it. The fees charged and the services included vary between managing agents.

In this example, operating costs account for approximately 42% of gross rental income. Energy costs peak in the colder months, particularly where gas and electricity are included in the rent.

The remaining £2,735 is not the landlord’s final profit. Mortgage payments, tax, major improvements and other property-specific expenses must still be deducted.

Unsure what your property should be costing to operate? Request an HMO management appraisal and we’ll assess the property, expected rent and likely management requirements.

Utilities and bills in an HMO

Where rooms are let with bills included, the landlord normally pays for gas, electricity, water and broadband. A TV Licence is sometimes needed too: in a room-by-room HMO with separate tenancy agreements, an individual tenant might need their own licence for their room, so check the property’s position with TV Licensing.

Usage varies with the seasons, occupancy and the property’s efficiency, and supplier tariff changes push costs up even when consumption stays stable. Sensible heating controls, decent insulation, prompt repairs and regular bill monitoring all keep consumption down.

Some landlords use a fair-usage provision where bills are included. Any such provision must be clear, properly set out in the tenancy agreement and consistent with the rules on charging: included utilities must accurately reflect costs, and landlords must not profit from reselling energy or water. Read the current government guidance on utilities and tenancy charges.

Council tax for an HMO

For an HMO let room by room under separate tenancy agreements, the owner is usually responsible for paying the council tax, so the cost is commonly built into each tenant’s rent. Where a group rents the entire property under one joint tenancy, the resident tenants are generally responsible instead. Liability is determined by legislation and the property’s circumstances, not simply by what the tenancy agreement says.

Most HMOs in England have been valued as a single property for council-tax purposes since 1 December 2023, so the property usually has one band rather than each room being banded separately. Certain self-contained accommodation or unusual layouts might still be treated differently following a Valuation Office Agency decision.

Charges vary by borough and band, so there is no reliable single national figure. In the five-bedroom example above, the planning allowance is £210 a month, but landlords should use the current bill for their own property. Landlords should check:

• How domestic properties and HMOs are assessed for council tax
• How to apply for an HMO to be valued as a single property or challenge its band

The council-tax definition of an HMO is not always identical to the licensing definition. If responsibility or banding is unclear, confirm the position with the local council and, where relevant, the Valuation Office Agency.

Do you need a licence to run an HMO?

Many HMOs require a property licence, but the exact requirement depends on the number of occupants, how many households they form, the facilities they share and the licensing scheme operated by the local council.

Under the national mandatory licensing rules, an HMO generally requires a licence where:

• Five or more people occupy the property.
• They form two or more separate households.
• They share facilities such as a kitchen, bathroom or toilet.
• At least one occupant pays rent.

Mandatory licensing applies regardless of how many storeys the property has. A licence is normally valid for up to five years, although councils sometimes grant shorter periods, and landlords need a separate licence for each licensable HMO they operate.

Smaller HMOs still need a licence in some areas. Councils sometimes introduce an additional licensing scheme covering properties occupied by three or four people from two or more households, and some areas also operate selective licensing for other privately rented properties. The rules therefore vary across South East London:

• Lewisham Council operates mandatory and additional HMO licensing.
• Royal Greenwich operates mandatory and additional HMO licensing, as well as selective licensing in designated areas.
• Southwark Council operates mandatory, additional and selective licensing schemes.
• Bromley Council currently operates the national mandatory HMO licensing scheme.

Licensing requirements and designated areas change over time, so check the property address with the relevant council before letting it or changing its occupancy. The government also provides a postcode-based HMO licence checker.

The licence fee is only one part of the cost. Councils often require floor plans, safety certificates and detailed property information before granting a licence, and the property must satisfy their space, amenity, fire-safety and management standards. Additional expenditure often includes fire doors, alarms and emergency lighting, extra kitchen or bathroom facilities, electrical or gas-safety work, improved ventilation, waste-storage arrangements and professional advice, particularly where an older property does not already meet current standards. Fees differ by council and property, so take any figure directly from the relevant council’s website and mark it with a ‘last checked’ date.

Licensing information last checked: 7 August 2026. Requirements change, so confirm the position with the relevant council before relying on this information.

Safety and compliance costs for an HMO

HMO landlords must budget for scheduled safety checks and for the remedial work those checks identify. Certificates are relatively predictable; fire doors, alarm upgrades and electrical repairs are where costs escalate. The core requirements:

• An annual gas-safety check on landlord-supplied appliances and flues by a Gas Safe registered engineer, with the Gas Safety Record supplied to tenants.
• An Electrical Installation Condition Report at least every five years, with qualifying remedial work normally completed within 28 days. Read the government’s electrical-safety guidance.
• A suitable and regularly reviewed fire-risk assessment, with precautions matched to the property: interlinked alarms, protected escape routes, fire doors and, where the layout requires it, emergency lighting. Royal Greenwich’s HMO fire-safety guidance shows the standards applied locally.
• At least one smoke alarm on every storey used as living accommodation, plus a carbon-monoxide alarm in any room with a fixed combustion appliance (excluding gas cookers), tested on the first day of each new tenancy.
• Safe landlord-supplied appliances. Annual PAT testing is sometimes a licence condition rather than a universal legal requirement.

Keep records of every certificate, test, inspection and remedial job: licence conditions in Lewisham, Greenwich, Southwark and Bromley each attach their own requirements, so check the conditions on your individual licence. Allow separately for remedial works, because a low certificate budget will not cover an unexpected fire-door upgrade or rewiring. Our HMO compliance checklist for landlords, coming soon, will cover the documents, inspections and renewal dates to monitor.

Repairs, maintenance and replacements

Repairs are among the most variable HMO running costs. A landlord might have several inexpensive months followed by a boiler failure, a water leak or an appliance replacement, so budgeting only for predictable bills gives a misleading picture. Shared kitchens, bathrooms and communal areas also wear faster than a single-family home, though the landlord remains responsible for the structure, installations and supplied items regardless of use.

No single maintenance percentage suits every HMO; the right reserve depends on the property’s age, condition and repair history. In the five-bedroom example, £250 a month (£3,000 a year) covers routine repairs as a planning provision. Budget separately for major works such as a new roof, heating system or refurbishment: these distort a single year’s figures and are often treated differently for tax.

Prevention is the cheapest repair. Regular inspections, prompt fixes and a property-specific maintenance record catch small problems, a slow leak or a failing extractor fan, before they become expensive ones.

Voids, arrears and tenant turnover

Voids, arrears and turnover reduce income while council tax, bills, insurance and mortgage payments continue, so they belong in the operating budget rather than being treated as surprises.

In the worked example, £240 a month covers voids and turnover: an annual allowance of £2,880, equivalent in value to each of the five rooms standing empty for around two and a half weeks a year. The true cost depends on room rents, local demand and how quickly vacancies are filled.

Every room changeover also brings advertising, viewings, referencing, Right to Rent checks, deposit administration, cleaning and minor redecoration. Some of these sit inside a management service; others are charged separately, so check the agent’s terms before comparing fees.

Good referencing reduces the risk of arrears but never removes it entirely. Monitor payments closely, act as soon as one is missed and keep a contingency for unpaid rent and, where necessary, the costs of recovering possession. Realistic pricing, good-quality advertising and preparing rooms before the existing tenancy ends all shorten avoidable gaps.

HMO management fees

HMO management fees are commonly a percentage of the rent collected, with tenant-find, rent-collection and fully managed service levels priced accordingly. Compare quotes on the services included rather than the headline rate, and establish whether the figure includes VAT and what triggers separate charges for tenant finding, renewals, inspections or check-outs.

In the worked example, the allowance is £570 a month, 12% of the £4,750 gross rent before any VAT: an illustrative figure rather than a quotation from Sturstons. Professional management does not remove the landlord’s legal responsibilities, but it helps reduce avoidable voids, catches maintenance issues earlier and keeps day-to-day administration organised.

For typical fee brackets, setup charges and the questions worth asking an agent, see How Much Does HMO Management Cost?

Sturstons provides HMO and shared-house management across South East London. Request an HMO management appraisal to discuss your property, current costs and management requirements.

Professional management can form a significant part of an HMO’s operating budget. See our full guide to how much HMO management costs for a breakdown of typical fees and services.

Which HMO running costs are tax deductible?

Costs incurred wholly and exclusively for the rental business, including council tax and utilities paid by the landlord, insurance, management fees, cleaning, routine repairs and safety certificates, are generally deductible when calculating taxable rental profit. Repairs and improvements are treated differently: restoring an existing item is usually a revenue expense, while work creating something new or substantially improving the property is often capital. A maintenance reserve is not deductible until the money is spent, so the £250 monthly provision in the worked example does not automatically become an allowable expense.

Replacement of Domestic Items Relief applies to like-for-like replacement of furniture and appliances (initial purchases are treated differently), and relief for mortgage interest is generally given to individual landlords as a basic-rate tax reduction rather than a full deduction, with companies subject to different rules. Read HMRC’s guidance on allowable property expenses and finance costs and on Replacement of Domestic Items Relief.

This is general information, not tax advice. Keep complete invoices and payment records and take advice from a qualified property accountant about your individual circumstances.

Are HMOs still profitable in 2026?

HMOs are still profitable in 2026 where gross rent comfortably exceeds operating costs, finance costs and tax, but performance varies significantly by property and landlord. A high gross rent does not necessarily mean strong net income.

Using the five-bedroom example in this guide:

The property retains approximately 58% of its gross rental income before mortgage payments and tax. The final cash profit is often substantially lower once finance costs, taxation and any major works are included.

How much do HMO owners make?

There is no reliable single figure. Two similar five-bedroom properties produce markedly different results because of purchase price and mortgage terms, rents and occupancy, whether bills are included, energy efficiency, licensing requirements, management arrangements, maintenance needs and the landlord’s tax position.

Calculate both monthly cash flow (rent received minus monthly outgoings, mortgage payments and other cash expenses) and annual net performance (total annual income minus operating costs, finance costs and property-specific expenditure), and measure return on investment against total cash invested, not the monthly rent alone. An HMO often generates more gross income than letting the same property to one household, but it also involves more intensive management, higher bills and more frequent turnover, so assess profitability from complete annual accounts rather than headline rent.

How to reduce HMO running costs

The most effective savings come from preventing avoidable expenditure without compromising safety, property standards or tenant service:

• Monitor bills and meter readings, and use sensible heating controls.
• Improve insulation and efficiency where the saving justifies the cost.
• Inspect regularly (lawfully, with the required notice) and fix small problems early.
• Service boilers, clear gutters and check ventilation on a schedule.
• Furnish with sturdy, easily replaceable items and washable finishes.
• Price rooms to current local demand, advertise before tenancies end and respond quickly to enquiries.
• Reference tenants consistently and keep a central compliance-renewal schedule.
• Review an agent on occupancy, arrears and repair spending, not the percentage fee alone.

Cost reduction should never mean delaying essential repairs, restricting essential services or missing licence and safety requirements.

Frequently asked questions

Request a free HMO management appraisal

Sturstons manages HMOs and shared houses across South East London, including tenant sourcing, rent collection, inspections, maintenance coordination and ongoing compliance administration.

Whether your HMO is already operating or you are reviewing its future management, we’ll assess its expected rent, current costs and likely management requirements.

Request a free HMO management appraisal or call 0208 108 5974.