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HMO conversion calculator

What turning a house into a shared house costs, and what it returns for it

Roughly ten thousand pounds a room, plus the fire strategy, plus the licence, plus planning permission if the street is under an Article 4 direction. Against that, the income is commonly double a single tenancy. This prices the conversion against the uplift in both income and value, and it tells you what the room count has to be before the whole thing is worth doing.

For: A house being converted into an HMO or a student let

Get it surveyed and pricedAll calculators
The house
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Five or more occupants from two or more households needs a mandatory licence everywhere in England. Creating 2 new rooms from the reception rooms, the loft or a rear extension.
Region
En suite to every room?
Adds £3,000 to £4,500 a room and typically £75 to £150 a room of rent, so it usually pays back inside three years. It also lets far faster and to better tenants.
Is the street under an Article 4 direction?
A house to a small HMO of up to six people is permitted development where no Article 4 direction applies. Seven or more always needs planning permission.
What the conversion costs
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Partition, door, decoration, flooring, furniture, locks and the room's share of the electrics. Around £10,000 a room is the national figure and £8,000 to £15,000 in Greater Manchester.
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A kitchen sized for the number of sharers the licence assumes, a communal room where the standard requires one, and usually a heating system that can cope with everybody showering at once.
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Fire doors to every room, interlinked detection to the right grade, emergency lighting on the escape route, and fire stopping above the ceilings. Not optional, inspected, and the thing most first HMO conversions under-budget.
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A loft conversion, a rear extension or moving a staircase, where the room count needs it. Price it properly on the extension calculator.
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Licence and fees
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£900 to £2,000 in most London boroughs and less elsewhere, and some councils charge per room. Check your own council's page: the variation is enormous and it is published.
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Layout drawings against the council's own amenity standards, a fire risk assessment, and building control sign-off. Three to seven thousand pounds is the usual range.
What it earns and what it becomes worth
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Bills included, which is why the running costs below are so much higher than a single let.
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Ninety two per cent is a well run professional house. It is the number that decides whether this works, and the one people overstate.
How will it be valued when it is finished?
By comparison with the houses either side of it, as though it were still a family home. This is what most lenders do below six rooms, and it means the conversion cost does not come back in the valuation.
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What a family house of that size and condition sells for on the street. The extra bedrooms help a little; the fire doors and the locks do not.
Extra income the conversion buys, every year+£9,036The conversion costs £130,065 to £196,926, which is £27,249 a room across 6 rooms. At £9,036 a year of extra net income it pays for itself in 18.1 years, which is £17,359 as an HMO against £8,323 as a single let. The property ends up worth £235,000 on a bricks and mortar basis.
£130,065 to £196,926Conversion cost
£27,249Per room
£17,359Net income as an HMO
£235,000End value
£215,676Left in after refinance
Purchase54%Rooms24%Fire and communal7%Fees and contingency7%VAT8%
The conversion
6 rooms fitted out£62,700 to £111,150
£10,450 to £18,525 a room, including an en suite. Every room gets done, not only the 2 new ones: an existing bedroom still needs a fire door, a lock, furniture and its share of the wiring.
Kitchen, communal and fire strategy£25,650
The fire works are inspected against the licence conditions, so they are not a place to economise.
Licence, planning and professional fees£5,900
No planning fee, because permitted development covers a small HMO here.
Contingency£14,138 to £21,405
VAT at 20%£21,678 to £32,821
Standard rated. A conversion to an HMO does not change the number of dwellings, so the 5% reduced rate does not apply however extensive the work is. This surprises people who have read about conversion relief.
Total conversion cost£130,065 to £196,926
£27,249 a room across 6, or £81,748 per room actually added.
All in, with the purchase£325,065 to £391,926
What it earns
Gross rent as an HMO£37,094
6 rooms at £560 at 92% occupancy.
Running costs£19,735
Management at 15%, bills at £85 a room a month, maintenance at 12%, communal cleaning, HMO insurance, the licence spread over five years and the annual safety regime.
Net income as an HMO£17,359
Net income as a single let£8,323
Payback on the conversion18.1 years
The income alone takes a long time to repay this. It only works if the valuation uplift comes with it, which depends entirely on how the property is valued.
Yield on total cost4.8%
Net income against everything you put in. The number that tells you whether the deal is good, independently of how it is financed.
What it becomes worth
Bricks and mortar valuation£235,000
On its income at 9.00% it would be £192,877, which is -£42,123 less. Below six rooms most lenders value on bricks and mortar whatever the income, which is the single biggest constraint on this strategy.
Value uplift over what you paid£40,000
Profit over total cost-£123,495
End value less everything you spent. Paper profit until you refinance or sell.
Getting the money back out
Refinance at 75%£176,250
Assuming an HMO product at 75% of the end valuation. Seventy is more common, and the rent has to support it as well.
Your money left in£215,676
£215,676 stays in the deal, earning 3.3% on the clear income after the mortgage.
Clear after the mortgage£7,225
£602 a month, on £176,250 at 5.75% interest only. Before income tax.
Where these figures come from

Conversion cost. Around £10,000 a room nationally, and £8,000 to £15,000 a room for a mid-specification conversion in Greater Manchester. Fixed costs of roughly £4,500 covering planning fees, the HMO licence and a fire risk assessment, plus £3,000 to £7,000 for professional fees, planning, building control and licensing combined.

Licensing. Mandatory for five or more occupants from two or more households. Most London boroughs charge £900 to £2,000 per property, and some charge per room.

Article 4. Where a direction is in place, converting a house to a small HMO needs full planning permission: about eight to thirteen weeks and roughly £578 in fees, with a genuine risk of refusal in a saturated area.

Yields. Industry sources put gross HMO yields at 7% to 10% against 4% to 6% for an equivalent single let, with Manchester quoted as high as 12.2% against 4.4%.

VAT. Standard rated. Converting a house to an HMO does not change the number of dwellings, so the 5% reduced rate does not apply.

Before income tax. The valuation basis is the single most important thing on this page and the one to establish before you start: below about six rooms most lenders value an HMO on bricks and mortar, by comparison with ordinary houses nearby, which means the conversion cost does not come back in the valuation and the money stays in the deal. A commercial valuation on income is normally available only on larger licensed HMOs with a specialist lender, and it is worth confirming with a broker before committing rather than discovering it at refinance. Licensing standards for room sizes, amenity ratios and the fire strategy are set by each council, published, and inspected: operating without a licence risks a rent repayment order covering up to twelve months of rent as well as a fine. An estimate, not advice.

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