Most HMO investors know limited companies are the way forward.
Yet some still hesitate, thinking it’s too much hassle, too expensive, or something they can “sort out later.”
But later is when it’s too late. As soon as the Title Deed is registered the cost of fixing it will be far higher than just doing it right from the start.
If you’re in the buying process and haven’t set up a limited company yet, stop now.
If you’re growing a portfolio and still believe even one of these myths, this post will save you thousands.
We’re breaking down 10 red flags—myths and misconceptions that still catch investors out.
Some were never true, some are half-truths, and every single one will gut your profits if you don’t see through them.
Let’s get rid of them now.
Red Flag One – “I’m Too Old to Get a Mortgage”
A lot of investors assume lenders won’t give them a mortgage past a certain age, so they hesitate, delay, or worse, never get started at all.
Shame, as for the majority of people, the peak earning years are 50’s and 60’s.
But here’s what they’re missing: when you buy through a limited company, lenders aren’t assessing you—they’re assessing the company. A company doesn’t retire, and lenders already expect shareholders to change over time. It’s built into the model.
Yes, some lenders do impose age restrictions on mortgages held in a personal name. But in the limited company space, the focus is on:
- The deal itself—rental income etc
- Your experience as an investor.
- The strength of the company’s financials.
I’ve seen investors in their 60s, 70s and even 80’s still securing finance in a Limited Company without issue because the lender is more interested in whether the company can afford the loan, not how many birthdays the shareholders have had.
Red Flag Two – “Limited Company Mortgages Are Way More Expensive”
This used to be true, five years ago. Back when fewer landlords used limited companies, lenders charged a premium because there wasn’t as much competition.
But that’s changed.
Since Section 24 all-but wiped out tax relief on mortgage interest for personally owned properties, almost every serious investor now buys through a limited company. Lenders had to adapt, and that means better rates, more competition, and more choice for us consumers.
Yes, a limited company mortgage may cost half a percent to 1% more in interest than a personal mortgage. But here’s the kicker:
- If you own personally, you can only offset 20% of your mortgage interest before tax.
- In a company, 100% of mortgage interest is deductible as a business expense.
- This lowers the tax bill significantly (See Red Flag 4)
So while the interest rate is higher, the actual tax savings outweigh the cost difference so it’s a net win…every year.
What’s really expensive? Paying 40-45% tax on your rental profits when you didn’t need to.
Red Flag Three – “I’ll Just Transfer My HMO Into a Company Later”
This is one of the most expensive mistakes an investor can make.
A lot of people assume they can buy in their personal name now and “just flip it into a company later” when it makes sense. But that’s not how it works—because legally, this isn’t a transfer. It’s a sale.
That means:
- Stamp Duty Land Tax (SDLT) on the full property value at the time of the transfer
- Capital Gains Tax (CGT) on any increase in value since you bought it.
- New mortgage needed because the owner has changed. Setup and early repayment fees!
LLPs used to be an option for some investors looking to sidestep Section 24, but recent rule changes have made that a lot trickier. There’s been a shift in how Capital Gains Tax is applied, and from what I’ve seen, the strategy isn’t what it used to be. Worth checking with a tax advisor if you were thinking about going down that route.
Here’s what KPMG have to say about LLP’s Budget: LLP’s in liquidation – changes to capital gains – KPMG UK
By the time most landlords realise they need a company, they’re looking at tens of thousands in sunk costs…that could have been avoided.
So, if you think a limited company is the right long-term move for your HMO portfolio, set it up before you buy because this is one expensive thing to fix later.
And if you think buying in your own name is still the simpler option, let’s take a closer look at what that actually costs long-term.
Red Flag Four – “Buying in My Own Name Is ‘Just Simpler’ …and Cheaper”
At first glance, buying in your own name feels simpler.
- No company setup costs
- Lower mortgage rates
- Fewer upfront buying costs
That Stamp Duty Saving is super tempting, and all your friends and family are shocked you’d even consider not making that saving.
But the moment an HMO starts making serious money, which it will, the tax bill makes personal ownership a disaster.
Let’s break it down briefly.
Owning Through a Limited Company
- Gross rental income: £100,000
- Agent fees (10%): £10,000
- Mortgage costs: £40,000
- Running costs: £12,000
- Taxable profit: £38,000
- Corporation tax (25%): £9,500
- Profit left in the company: £28,500
Owning in Your Own Name (Assuming You’re Already a Higher-Rate Taxpayer)
- Gross rental income: £100,000
- Agent fees (10%): £10,000
- Mortgage costs: £35,000 (assuming slightly lower mortgage interest rate)
- Running costs: £12,000
- Mortgage interest deductible (only 20%): £7,000
- Taxable income: £71,000
- Tax payable (40% as a higher-rate taxpayer): £28,400
- Annual net profit (after tax): £14,600
The Real Cost of Buying in Your Own Name
- You pay £35,000 in mortgage interest, but HMRC only lets you deduct £7,000.
- You end up paying tax on £28,000 of ‘profit’ that doesn’t actually exist as it’s a real cost.
- You take home HALF the amount you would in a limited company.
And that delta…that difference? Every year. Save the 15k on stamp duty once, but the long term cost of not owning your HMOs in a limited company speaks for itself.
Red Flag Five – “Setting Up a Limited Company Is Too Expensive”
Hear “limited company” and immediately assume complicated, expensive, and time-consuming?
Here’s the reality:
- Setting up a limited company costs £50. That’s literally the fee to register a company online. See here: https://www.gov.uk/limited-company-formation/register-your-company
- Getting it structured properly with an expert CPA? Around £300-£400 for 2 shareholders.
- Annual accounting fees? Roughly the same as what you’d pay for a self-assessment with multiple properties in your own name.
If you’re setting up an FIC (Family Investment Company) or FIT (Family Investment Trust), these costs get a lot higher and they’re more bespoke, £2,000-£3,000+ in our experience, and they carry an annual management fee…and they protect more against IHT.
But in Red Flag 4, we broke down a £100k gross income HMO depleting down to just £14,600 net in personal ownership. That’s enough to stop any sane investor in their tracks.
And that’s the real cost,
- Not the £300 for an accountant,
- Not the £50 to register a company,
- Not the accounting fees
But the fact that if you don’t set up correctly, your HMO venture won’t be profitable enough to scale.
All that work to give 40% to the tax man!
Stopping scaling because it’s not profitable shouldn’t even be a thought when investing in HMOs. There are many constraints to battle against, but profitability shouldn’t really be one.
If it is, or it has been, then there’s a problem. You’re helping solve the housing crisis by providing high quality, high density housing.
Structure it right so you can grow more and everyone wins!
Red Flag Six – “I Need a Bigger Deposit for a Limited Company Mortgage, So I’ll Just Buy in My Own Name For Now”
Yes, limited company mortgages can sometimes come with a lower LTV, 60% or 70% meaning you’ll likely need a bigger deposit than if you were buying in your own name. Isn’t always the case though as 75% LTV products are still common.
But the solution isn’t to take the easy route and buy in your personal name so you can put less deposit down…or worse, pretend you’re going to live in it just to get a bigger mortgage, hoping you can “fix it later” at refinance.
That’s super risky, can get you blacklisted by lenders, and the tax implications are brutal if you own in your own name…not to mention that tax rules can and do change.
Banking on the government not increasing income tax rates is a risky game these days!
The red flag here is mindset. If the numbers stack up, raising capital is the answer, not personal ownership to bridge the LTV gap.
Solutions?
- Development Finance – Shift build budget to the purchase and raise funds for the build.
- Investor or JV funds – Bring in a partner to cover the shortfall on the deposit.
Yes, short-term finance is more expensive, but if you’re building a portfolio, locking yourself into 40-45% tax forever just to save on interest in year one will be a heavy price in the long term.
Now, if the deposit and build costs are genuinely too much, and you’re stretching too thin, then throttle back, because things can get ugly quickly with high borrowing costs. Don’t blow up.
But the solution isn’t to buy in your own name to save costs up front and hope to fix it later.
And when that tax bill drops in year 2, 3, 5, 10, rent increases barely touch the sides, or that promotion at work means even more tax, you’ll feel it.
Now, let’s talk about another fear that holds investors back: the idea that selling a company-owned property is harder. Spoiler: it’s not.
Red Flag Seven – “Properties Are Harder to Sell from Within a Limited Company”
A company-owned property can be sold just like any other, whether to an individual or another company. But unlike personal ownership, having it in a company gives more flexibility in how and when profits are taken, which can be a huge advantage depending on circumstances.
When selling a personally owned property, Capital Gains Tax is due on any increase in value right away. There’s no deferring it, no spreading it out—it’s taxed when the sale happens. But when a company sells a property, Corporation Tax applies instead, and as long as the profits stay inside the company, there’s no immediate personal tax to pay.
From there, what happens next depends on what the owner wants to do:
- Reinvest the profits into another asset inside the company.
- Extract funds through a mix of salary, dividends, or pension contributions, each with different tax implications.
- Hold onto the cash inside the company for a future opportunity.
Owning in a company also creates another option—selling the company itself rather than the property. This can be attractive to buyers because:
- Instead of purchasing the property outright, they may be able to acquire the company along with its assets, potentially reducing transaction costs.
- If there’s an existing mortgage, they could take it over instead of refinancing, which might be beneficial depending on the interest rate, which might be lower than market.
- The tax treatment of share sales is different from direct property sales, which could create advantages for both the buyer and seller.
Of course, every investor’s situation is different, and the best approach depends on personal financial goals, income levels, and long-term plans. The key thing to recognise is that owning in a company doesn’t make selling harder—it gives you more ways to structure the exit in a way that works best for you.
The real red flag isn’t that company-owned properties are difficult to sell, it’s not thinking about the exit strategy early enough and leaving yourself with fewer options when it matters most.
Red Flag Eight – “You Can Only Get Lending If Your Company Has Trading History”
It sounds logical, lenders want to see a company’s financials before approving a mortgage, right? So if your limited company is brand new, surely you’ll struggle to get lending?
What they actually look at is:
- Your experience as an investor – If you have property experience, great. If not, they’ll just want the numbers to stack up.
- The deal itself – The rental income needs to cover the mortgage payments with a lender’s stress test applied.
And here’s the twist, in a lot of cases a new company is actually better.
If you’re trying to buy property in an existing limited company that trades (e.g., managing tenants, lettings, maintenance, or other services), lenders can see this as a higher risk.
Why?
Because if that company ever got sued, the properties inside it would be exposed to the claim.
That’s why most lenders prefer clean holding companies, companies set up only to own property.
So if you’re thinking it’s a chicken and egg situation, it’s not. Set up the company, put it in funds with a directors loan, and speak to your broker.
Red Flag Nine – “You Should Set Up a New Company for Every HMO”
Some investors believe that every HMO should have its own company. But that sounds expensive. And it is.
In reality, this just adds layers of complexity that make scaling painful.
For most investors, one well-structured limited company is enough to hold multiple HMOs. Currently there’s no VAT to pay on rent, so the VAT threshold is one less consideration as well.
Setting up a new company for every property creates:
- Higher accounting and admin costs – Every company needs its own accounts, tax returns, and compliance, which means more fees and more hassle.
- Unnecessary complexity – Each new company adds another layer of paperwork and makes your portfolio harder to manage.
Now, there are advantages to separate companies. If you were to get sued, the liability would be limited to that specific company. But let’s be real, you’re not going to have 10 different companies for 10 HMOs. The better approach? Keep your properties in a holding company and your trading activities (like management or lettings) in a separate company.
Everything beyond that is down to personal preference, how you want to structure your business, your long-term plans, and how much admin you want to take on.
What isn’t preference? Owning properties in your own name, because if you ever face a lawsuit, your personal assets, including your family home if you have one, could be exposed to a personal claim.
A limited company protects you from that. So whether you use one company or several, the key thing is owning properties the right way from the start.
And finally, the biggest misconception of all: that limited companies are only necessary once you have a large portfolio. Here’s why that thinking will cost you—starting from your very first HMO.
Red Flag Ten – “Limited Companies Are Only for Large Portfolios”
With HMOs, you’re in at the deep end from day one.
A 9-bed HMO generating £800 per room brings in £86,400 a year in rent. Even after expenses, the taxable income is significantly higher than a single let. And, if you already have a job paying say, £60,000+, that first purchase alone could instantly push you into the 45% tax bracket.
So where does this myth likely come from?
A typical buy-to-let in Manchester might generate £15,000 a year in rent. After costs, and with an average UK salary, that income can often be managed within your personal tax, staying within the basic rate (up to £50,270) tax band for a while before tax becomes a serious issue.
That’s why many buy-to-let investors feel like they have time to “get a few properties under their belt” before worrying about tax planning.
HMO investing is a different beast and especially with larger ones, there’s no buffer. If you don’t set things up properly from the start, right out of the gate you could be handing nearly half your property income to HMRC before you’ve even started scaling…or worse, throttling back from buying more.
Once the title deed is drawn up and it’s in your personal name, things can get expensive real fast when it comes to your self-assessment if you haven’t separated your property income from your job/salary.
Waiting until you have a “large portfolio” isn’t a strategy, it’s just waiting until you’ve already lost thousands in unnecessary tax. Get it right from the start, and everything down the line becomes easier.
Final Thoughts – Burning the Red Flags Before They Cost You Thousands
Most serious HMO investors have already adapted, because the numbers simply don’t work any other way.
But the biggest losses don’t come from people actively ignoring better strategies. They come from not realising the opportunity cost until it’s too late.
These red flags aren’t just minor, they’re the difference between a profitable, scalable HMO portfolio and one that bleeds money in wasted tax, inefficient lending, and structural mistakes that only get harder (and more expensive) to unwind later.
The good news? Every single one of these is fixable.
HMO investors are playing the game in a harder mode than most. So they share knowledge, train, help each other and share ideas. It’s way cheaper and more efficient than making mistakes that cost serious time and money.
That’s exactly why we built our HMO Investor Community.
The ‘Kent HMO Alliance’
- Weekly Q&A sessions with experts who actually invest in HMOs;
- Live webinars and training calls to help you scale the right way;
- A network of serious HMO landlords sharing what’s working right now;
- Our leaderboard, earn rewards like free courses and exclusive training, just for engaging;
- Zero cost, high-value insights that could save you thousands.
If you’re an HMO landlord in Kent (or planning to be one), let’s make sure you’re set up for success.
We’re inside the community every single week, answering questions, breaking down deals, and helping investors avoid costly mistakes before they happen.
How to Join?
Take the Scorecard (below), discover your HMO Investor Profile based on your personality, and get exclusive access to the community… where the real conversations happen.
(And you can share your scorecard result with the other members as a way to break the ice!)
Take the Scorecard now, access the community and we’ll see you inside.
