Investors turn to HMOs for higher yields
Property investors are being urged to convert properties into HMOs to achieve higher yields.
According to Excellion Capital, purchasing a three to four-bed property and converting it into a six-bed HMO could cost a £512,340 in England, but the average yield achieved is 10%.
The firm say lenders are highly attracted to HMOs, and bridge loans are often ideal for HMO conversions.
HMOs deliver higher yields
Research by Excellion Capital shows that the average HMO in England brings in £711 per room each month, meaning a six-bed property could generate around £4,269 in rental income.
As a result, the average gross yield delivered from a six-bed HMO in the current market sits at 10%. This is significantly higher than the wider average rental yield in England which usually sits between 5%-6%.
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% after converting a three or four-bed property into a six-bed HMO. In the North West, the average yield stands at 11.5%, while in Yorkshire & Humber, it’s 11%.
In Manchester, where the average three or four-bed property sells for £329,163 and the average rental income from a six-bed HMO is £4,050, the yield stands at 12.2%.
Meanwhile, the average six-bed HMO yield in Newcastle stands at 11.9%, and in Birmingham it’s 10.6%.
HMOs are popular with lenders
Robert Sadler, Vice President of Real Estate at Excellion Capital, said: “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.”
Mr Sadler adds HMOs remain a strong option for lenders.
He said: “HMOs, with a few exceptions, are very popular with lenders because the required conversion works tend to be relatively light, investors can usually fund both the acquisition and the works with a bridge loan. This is ideal as bridge loans complete much faster than development loans and require much less oversight by the lender.”
For assistance with any type of buy-to-let (BTL), property or commercial finance please complete the contact form below:
Contact Brooklands Commercial Finance
Comments
Have Your Say
Every day, landlords who want to influence policy and share real-world experience add their voice here. Your perspective helps keep the debate balanced.
Not a member yet? Join In Seconds
Login with
Member Since August 2016 - Comments: 1190
11:48 AM, 5th June 2025, About 11 months ago
Who in their right mind would want an HMO when Section 21 is disappearing.
Member Since March 2022 - Comments: 364
2:20 PM, 5th June 2025, About 11 months ago
Reply to the comment left by Dylan Morris at 05/06/2025 – 11:48This is true, the more individual tenants you have the greater risk there will be rogue of some sort amongst them. The ONS predicts that the number of single person households will increase in the future . Most people on their own cannot afford to buy so renting is the only option. As a hard up single person maybe on benefits why rent more space than you actually need to exist in? (I can’t really use the word “live” in this context).
Consider this simple sum. In my area the 4 bed LHA rate is £281 /week and the single room rate is £109/week. You can probably get a 5 bed HMO out of a 4 bed house (who needs two reception rooms?). So you can get £281/week for a house or £545/week as an HMO, if you are happy with the risk and want to supply that sort of housing the profits are good. Alternatively, just let Serco manage your HMO for you, on what on the face of it seems a too good to be true deal.
Member Since October 2013 - Comments: 1635 - Articles: 3
4:48 PM, 5th June 2025, About 11 months ago
I can get 5% from the bank on 512k = £25.6k and pay 10% tax on the interest, and not lift a finger. Or, invest it in BTR; I’ve had a 21% RoI over the past 18 months. Or, get 10% yield on an HMO… but what’s the PROFIT? How much tax will I pay? How much could it cost when tenants a stop paying? Licensing? Hassle?
Member Since August 2016 - Comments: 1190
9:52 AM, 6th June 2025, About 11 months ago
Reply to the comment left by NewYorkie at 05/06/2025 – 16:48
Image by a bit of bad luck you get a tenant causing trouble in your HMO. All the other tenants leave because they cannot stand the situation any longer. Section 21 has gone and you’ve now got to issue a Section 8. But the problem is it’s not really anti social behaviour., or certainly not strong enough a case to get it through the Courts. You cannot get any evidence as all your other HMO tenants have moved on and not interested now. No rent coming in, big mortgage to pay. No way out. What on earth do you do ?
Member Since October 2013 - Comments: 1635 - Articles: 3
9:59 AM, 6th June 2025, About 11 months ago
Reply to the comment left by Dylan Morris at 06/06/2025 – 09:52I’ve been in a similar situation where one tenant made life miserable for other tenants. One even offered to have him sorted out. Police and council weren’t interested, until he was arrested for downloading child porn. I was expecting him to be carted off to prison, but no, the scumbag was allowed to hang around causing mayhem for 15 months until I could evict him. He was banged up soon after!
Member Since August 2016 - Comments: 1190
10:06 AM, 6th June 2025, About 11 months ago
Reply to the comment left by NewYorkie at 06/06/2025 – 09:59
Did you use a Section 21 ?
Member Since October 2013 - Comments: 1635 - Articles: 3
11:18 AM, 6th June 2025, About 11 months ago
Reply to the comment left by Dylan Morris at 06/06/2025 – 10:06
I was advised by my solicitor to use a s8. On reflection, I wonder if a S21 would have been quicker, cheaper, and easier.
Water under that bridge. I was suffering badly with covid and my mental health was shattered, so I sold up.