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Co-Living vs. HMOs: Which Investment Model Delivers the Best Returns?


With the increasing demand for shared living spaces, property investors are looking for strategies that offer high returns and long-term viability. Two popular models—Houses in Multiple Occupation (HMOs) and co-living developments—provide lucrative opportunities. But which one delivers the best returns? In this article, we compare both investment models to help you make an informed decision.


 

1. Understanding the Differences between HMOs and Co-Living


While HMOs and co-living spaces share similarities, their approach to tenant experience, management, and profitability differ significantly.


  • HMOs: Typically, these are shared rental properties where tenants have private rooms but share communal facilities such as kitchens and bathrooms.

  • Co-Living: A modern evolution of HMOs, co-living spaces are professionally managed, with enhanced amenities, social spaces, and community-driven living experiences. There is a focus on community facilitation as well. 



2. Rental Yields & Income Potential


  • HMOs: Offer strong rental yields, often between 8-12%, due to multiple income streams from tenants.

  • Co-Living: Premium rental rates can be achieved due to added amenities, providing yields between 10-15% in key locations.


Co-living spaces justify higher rents by offering furnished rooms, co-working areas, and enhanced services such as cleaning, Wi-Fi, and social events, attracting long-term tenants who are willing to pay more.


3. Tenant Demand & Market Trends


  • HMOs: Suitable for students, young professionals, and low-to-mid-income earners. Demand remains steady in major cities and university towns.

  • Co-Living: Targets professionals and digital nomads seeking convenience and a sense of community. The demand is rising, particularly in urban areas with high rental costs.


With remote work trends growing, co-living spaces cater to tenants who prioritise flexibility, networking, and lifestyle over just affordability.


4. Management & Operational Costs


  • HMOs: Require active management, tenant screening, and compliance with licensing regulations. Void periods can be an issue if properties are not well-maintained.

  • Co-Living: More hands-on due to added services, but with the right management systems, these spaces benefit from higher occupancy rates and reduced tenant turnover.


While co-living has higher operational costs, the added revenue from premium rents often offsets this.


5. Long-Term Investment Viability


Both models provide strong cash flow, but co-living presents unique advantages:


  • Higher Valuations: Lenders often favour co-living projects due to the structured business model and long-term demand.

  • Scalability: Investors can replicate successful co-living spaces across different locations more easily than standard HMOs.

  • Sustainability: Co-living developments often integrate energy-efficient designs and community-driven initiatives, aligning with modern housing trends.



 


Final Thoughts


For investors seeking higher yields and long-term scalability, co-living spaces offer stronger rental premiums and lower turnover rates compared to traditional HMOs. However, HMOs remain a reliable strategy, particularly in student hubs and high-demand rental areas.


Choosing the right model depends on your investment goals. If you're looking for high-yield, tenant-centric property investments, Aura Ventures can help you navigate the best opportunities.






 

DISCLAIMER


Aura Property Ventures Ltd works with High Net Worth or Sophisticated Investors only. Any information provided here is not for public promotion and is not to be regarded as an FCA-approved regulated investment.


Please read our terms and conditions relating to the use of this site for further information.


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