Each example shows the complete monthly and annual P&L for a specific HMO deal — property details, full cost breakdown, pre-tax and after-tax cash flow, gross yield, net yield, and cash-on-cash ROI. They are designed as benchmarks and teaching tools — compare your own deal against the relevant example to identify what's performing well and what needs attention. For your specific deal, use the HMO profitability calculator.
What should your HMO be making? — 2025 benchmarks
| Grade | Gross yield | Net yield | Pre-tax CF/mo (5-bed) | After-tax CF (20%) | After-tax CF (40%) | Profile |
|---|---|---|---|---|---|---|
| A — Excellent | 12%+ | 7%+ | £700+ | £550+ | £200+ | Nottingham NG7, Sheffield S3, Glasgow G51 |
| B — Good | 9–12% | 5–7% | £350–£700 | £270–£550 | £0–£200 | Sheffield S10, Leeds LS6, Liverpool L6/L7 |
| C — Marginal | 7–9% | 3.5–5% | £0–£350 | £0–£270 | Negative | Manchester M14, Birmingham B15, Bristol BS3 |
| D — Poor | <7% | <3.5% | Negative | Negative | Significantly negative | Most London areas; overpriced markets |
Benchmarks assume: 5-bed HMO, 75% LTV IO mortgage at 5.2%, agent-managed at 13%, landlord-paid bills, 1.75% maintenance. Basic rate = 20% Section 24 calculation. Higher rate = 40% Section 24 calculation. Post-tax figures are approximations.
Frequently asked questions
Why does Section 24 make such a big difference to higher-rate taxpayers?
Section 24 taxes higher-rate landlords on their gross rental income (minus non-mortgage costs) at 40%, then gives back only a 20% tax credit on mortgage interest. The effective result is that mortgage interest is taxed at 20% net — even though the landlord doesn't keep that money. A higher-rate taxpayer paying £1,100/month in mortgage interest faces an additional £220/month in tax (20% × £1,100) versus a basic-rate taxpayer on the same deal. This is why Example 2 shows £614/month in Section 24 tax against a pre-tax cash flow of only £678 — the vast majority of the pre-tax return is consumed by the tax charge.
How do I know if my HMO cash flow is good?
Compare your deal against the benchmark table above. As a rule of thumb for a mortgaged personal-name basic-rate landlord in 2025: above £300/month pre-tax cash flow is good; £100–£300 is acceptable; below £100 is marginal. For higher-rate taxpayers, add approximately £300–£400/month to the pre-tax figure needed to achieve the same after-tax result. Use our HMO calculator to model your specific deal rather than relying on rough benchmarks.
Is it better to use an agent or self-manage given these cash flows?
In Examples 1 and 4 (self-managed), removing the 13% management fee adds approximately £350–£450/month to the cash flow — a material improvement. In Examples 2 and 5 where Section 24 tax is the dominant issue, self-management helps but doesn't solve the fundamental tax problem for higher-rate taxpayers. The honest answer: self-management is most financially valuable in strong-yield markets where the percentage saving is largest; in weaker-yield markets where tax is the primary drag, the right structural decision (personal vs limited company) has a bigger impact than the self/agent management decision. See our HMO management costs guide for the full comparison.
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