Almost every London landlord who looks at short lets and HMOs ends up comparing them. Both raise the income from one property. Both come with regulation. They are not interchangeable, and choosing badly is an expensive mistake that takes a year to unwind.
Here is how I think about it, without a projection spreadsheet.
The short version
Choose serviced accommodation if the property is in demand as a place to stay, needs little or no building work, and you want higher income in exchange for daily involvement.
Choose an HMO if the house can be reconfigured legally into rooms, the borough will license it, and you want steadier income with more compliance and more tenant management.
Choose neither if the numbers only work with assumptions you cannot control.
Where the money comes from
Serviced accommodation earns per night. Revenue is occupancy multiplied by rate, and both move through the year. You are selling a stay, so the product is the whole experience: the photos, the check in, the cleanliness, the response time. Fail on any of those and your occupancy falls before your costs do.
An HMO earns per room, per month. Revenue is rooms multiplied by rent, adjusted for voids and arrears. You are selling a home to someone who needs somewhere to live, so the product is the room, the shared space and how well the house is managed.
The first model has higher peaks and deeper troughs. The second is boring in a good way, provided the licence and the standards are sorted.
Five questions that decide it
- What is the property? A two bedroom flat close to a station is a short let. A five bedroom Victorian terrace with a loft is an HMO conversation. Forcing a property into the wrong model is where most of the pain starts.
- What does the borough allow? Article 4 directions, additional licensing schemes, and short let enforcement differ street to street in London. This decides feasibility before revenue.
- What does the lender and the lease say? Many buy to let mortgages prohibit short lets. Many head leases restrict lets under ninety days. Both are checked before anything else.
- How much of your week is available? Serviced accommodation is a daily job. An HMO is a weekly job with monthly peaks. If the honest answer is a few hours a month, you need management, and that changes the numbers.
- Can you carry a bad quarter? Short lets have quiet months and HMOs have voids. Whichever model you choose, the cash buffer is part of the plan, not an afterthought.
The comparison that fools people
A short let quoted at a high nightly rate looks like it beats an HMO on every measure. It usually does not survive contact with the calendar. Occupancy of sixty percent, commission, cleaning per turnaround, utilities, business rates and void weeks can take that headline rate down to something close to a well run HMO, with far more of your time spent.
The reverse is also true. An HMO that needs a full refurbishment, fire doors, sound insulation and a licensing application has a setup cost that can wipe out two years of the extra income it was supposed to generate.
Compare net income after setup cost, over a realistic five year period, with voids in both columns.
What I would check first
- The council’s current licensing position for that postcode, in writing where possible
- Whether the mortgage allows the intended use
- The head lease, if leasehold, for restrictions on letting and on paying guests
- Whether the building works needed are cosmetic or structural
- The realistic low season, not the best month you have seen
- Who does the work at eleven on a Saturday morning
If a property clears those six, the modelling is worth doing. If it fails any of them, no spreadsheet rescues it.
KPN Estates works with a small number of London landlords on serviced accommodation and HMO setup and management. If you are weighing up the two, get in touch with the details and I will tell you what I would check first.
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