HMO rental yields have reached 12.5%, surprising research reveals
Despite some hefty upfront conversion costs, investment in an HMO can still make good financial sense, according to Excellion Capital.
With so many reports of new places adopting HMO licensing schemes and other regulatory red tape, some investors may be put off.
But new research from investments firm Excellion Capital reveals that while HMO conversion costs an average of £68,067, the rental yield can be as high as 12.5%.
The firm looked at the amount needed to convert a three or four-bed property into an HMO with six bedrooms. And the figure worked out at an average of £11,345 per bedroom.
Total upfront investment
With the average three of four-bed house price England currently at £444,273, the total upfront investment required is £512,340.
The average HMO in England attracts a monthly rent of £711 per room which, with six occupants, comes to a total monthly income of £4,266.
So the average gross yield delivered from a six-bed HMO in the current market sits at 10%.
12.5% yield
HMO yields are even higher in some regions of England, led by the North East where the average investor can expect a yield of 12.5%. In the North West, the average yield stands at 11.5%, while in Yorkshire & Humber it’s 11%.
The lowest yields are found in London where expensive property prices mean the average HMO yield sits at 6.6%, while in the South East it’s 8.1%.
Investors are snapping up relatively cheap three or four-bed terraced homes and converting them to six-bed HMOs.”
Robert Sadler, Vice President of Real Estate at Excellion Capital, (main image) says: “We are seeing a lot of property investors in the residential space turn their attention to the bustling HMO market, especially in the regions.
“Particularly outside of London and our other major cities, investors are snapping up relatively cheap three or four-bed terraced homes and converting them to six-bed HMOs with extraordinary results when it comes to returns and yields.”
