HMOs offer higher rental yields than other properties, research shows

Investing in houses in multiple occupation (HMOs) can be more profitable than non-HMO’s with landlords enjoying nearly DOUBLE the average yield, research reveals.

Octane Capital, a specialist property lending company, analysed the cost and return of converting a four-bedroom property into an HMO across England.

The research found that the average house price in England is £309,616 and the average cost of converting a single room into an HMO is £10,267.

This means that buying and converting a four-bedroom property into an HMO would cost around £350,683.

The firm’s research also showed that the average monthly rent for an HMO room is £593, or £2,372 for a four-bedroom HMO – which is an average yield of 8.1% for an HMO investor, which is much higher than the average yield of 4.4% for a regular rental property.

‘HMOs can make a very worthwhile investment’

Octane’s chief executive, Jonathan Samuels, said: “HMOs can make a very worthwhile investment for those with the capacity to take one on.

“Not only are yields generally higher due to increased rental income, but you also benefit from higher demand from tenants, as well as tenant diversification.”

He adds: “Of course, they aren’t all plain sailing, and not only will an HMO conversion require additional upfront costs, but they tend to come with higher operating costs, as well as a raft of additional compliance and legal obligations.

“However, for those who can successfully negotiate these potential pitfalls, HMO investment is sure to provide a far stronger return than they may otherwise find with a regular rental investment.”

HMOs offer higher yields in all regions of England

The study revealed that HMOs offer higher yields in all regions of England, with the North East topping the table with an average HMO yield of 11.2%.

That is 6.3% higher than the average regular rental yield of 4.9% in the region.

In Yorkshire and the Humber, the average HMO yield is 5% higher than the regular rental yield, while in the East Midlands, it is 4.7% higher.

Even in London, where the gap is the smallest, the average HMO yield is 2.4% higher than the normal rental yield.