Deciding between PBSA or HMO investment is now one of the most important choices for investors targeting student and shared housing markets. Both routes can deliver strong returns, but they require different capital, management intensity and risk tolerance. This article compares PBSA and HMO investment across yields, regulation, tenant risk, operational requirements and exit liquidity so you can choose the option that fits your objectives in 2025.

PBSA or HMO investment: quick summary

Purpose-built student accommodation, known as PBSA, is professionally developed and managed by institutional operators. Houses in multiple occupation, or HMOs, are usually converted properties rented to several unrelated tenants and often managed by landlords or specialist agencies. PBSA tends to offer lower yield percentages but greater operational simplicity and liquidity. HMOs generally offer higher gross yields, greater hands-on management and more acute tenant risk, particularly where changes in landlord-tenant law increase eviction complexity. Recent market commentary stresses both the growth of PBSA demand and the resilience of HMO yields, so investors must balance return with operational capability.

Yields and returns: the numbers you must model

When evaluating PBSA or HMO investment, yields are a primary driver of decision-making. Industry data shows PBSA typically delivers lower headline yields but more stable net returns after operator costs and voids are accounted for. Institutional reports from JLL and QX Global highlight strong structural demand for PBSA driven by record student numbers and an ongoing supply shortfall. PBSA investment has attracted significant capital, supporting lower yield compression but higher liquidity in core locations.

HMOs often report higher gross yields. Recent sector coverage indicates HMO yields in some cities have exceeded 8 per cent, particularly where demand from students or young professionals is strong. Higher yields come with higher operating costs, more intensive management and potentially higher void risk during periods of weaker demand. For many private investors, HMOs remain attractive on a yield basis, but they require active oversight.

Regulation and policy risk: what has changed in 2025

Regulatory change has become a live factor in the PBSA or HMO investment decision. The Renters’ Rights Bill and associated reform measures aim to increase tenant security by, among other reforms, abolishing no fault evictions and introducing higher standards of property condition in the private rented sector. These changes increase compliance demands on landlords and may lengthen the eviction process for problem tenants. The guidance from government and parliamentary briefings makes clear that landlords must anticipate higher regulatory standards and greater enforcement powers for local authorities.

In this environment, PBSA can be appealing because institutional operators are already structured to meet high compliance standards. HMOs, especially those run by small-scale landlords, must invest in compliance, record keeping and property management to meet new requirements. The Renters’ Rights Bill does not ban HMOs, but it does raise the bar for landlord compliance and could make eviction processes slower and more costly, which is material when assessing tenant risk for HMOs. Approach the PBSA or HMO investment decision assuming higher compliance costs for HMOs.

Operational demands and management

A key difference when weighing PBSA or HMO investment is the operational model. PBSA is typically hands-off for investors who partner with or invest in professionally managed blocks. Those blocks benefit from centralised services, marketing to students, resident management and facilities that support high occupancy rates. Investors benefit from predictable net income after operator fees, although gross yields are often lower due to value compression and professional operating costs.

HMOs demand a hands-on or closely supervised approach. Landlords must manage tenant vetting, frequent tenant turnover, utility arrangements, and furnishings. HMOs may produce stronger cash yields, but landlords must allow for higher maintenance, furnishing costs and management time. If you do not want to operate at this level, HMO management companies are available, but they reduce net returns. In short, PBSA or HMO investment becomes a question of whether you prefer lower-touch institutional models or higher-return, higher-effort private ownership.

Tenant risk and lettability

Letting risk differs materially between PBSA and HMOs. PBSA occupancies are typically underpinned by university cycles and professional letting teams that reduce voids. Universities continue to recruit high numbers of students and institutional demand remains strong across major cities, supporting PBSA letability. HMOs can achieve full occupancy in strong student or young professional markets, but a single problematic tenant or shift in local demand can cause higher turnover and voids. Given reforms that restrict no-fault evictions, the operational risk of managing difficult tenants in HMOs has increased, which must be factored into underwriting and insurance costs.

Liquidity and exit strategy

Liquidity is another differentiator in the PBSA or HMO investment choice. PBSA assets in core university cities are traded by institutional investors and funds, which can offer deeper markets and clearer exit pricing for large blocks. HMOs are typically sold as residential investments and can be less liquid if market sentiment softens or if the local market becomes oversupplied. For investors who prioritise a clear exit path and institutional demand, PBSA may be preferred. For those targeting local yield and value-add through refurbishment and active management, HMOs can be attractive, provided you plan the exit carefully.

How to choose: practical checklist

When deciding between PBSA or HMO investment use this checklist:

  1. Define your target yield and acceptable management burden.
  2. Stress test returns for longer void periods and higher compliance costs under the Renters’ Rights Bill.
  3. Assess local demand dynamics: student numbers, university expansion plans and professional jobs growth.
  4. Factor in exit liquidity and whether you need institutional market access.
  5. Get quotes from specialist HMO managers and PBSA operators to model net returns accurately.

Answer these and you will have a clear preference between PBSA or HMO investment based on facts rather than assumptions.

Both PBSA or HMO investment can be profitable in 2025 but they suit different investor profiles. Choose PBSA if you prefer institutional-grade assets, lower operational involvement and predictable net income. Choose HMOs if you want higher headline yields and are prepared to manage properties actively or pay for professional management. Factor in the Renters’ Rights Bill and rising compliance standards when underwriting HMOs, and always stress test returns under adverse scenarios.

If you want a tailored assessment of which route suits your capital, risk appetite and time availability, contact TK Property Group for a practical, data-driven recommendation and cashflow model.