Are you looking to make the most out of your property investments? If so, you might want to consider exploring the world of Houses in Multiple Occupation (HMOs). Recent research conducted by Octane Capital, a specialist property lending company, reveals that investing in HMOs can yield nearly double the average returns compared to non-HMO properties. In this blog post, we’ll delve into the details of this research and explain why HMOs might be the golden ticket for landlords seeking higher profits.
Understanding the HMO Advantage
Octane Capital’s research analysed the cost and return on converting a standard four-bedroom property into an HMO across England. They found that the average house price in England stands at £309,616, while the cost of converting a single room into an HMO is approximately £10,267. Therefore, the total investment for purchasing and converting a four-bedroom property into an HMO would amount to around £350,683.
The real game-changer, however, comes in the form of rental income. The research revealed that the average monthly rent for an HMO room in England is £593. In the case of a four-bedroom HMO, the total monthly rent reaches £2,372. This translates to an impressive average yield of 8.1% for HMO investors, significantly higher than the average yield of 4.4% for a regular rental property.
Benefits of HMO Investments
Jonathan Samuels, the CEO of Octane Capital, highlights the appeal of HMO investments, saying, “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 acknowledges that HMO investments come with their own set of challenges, such as additional upfront costs, higher operating expenses, and increased compliance and legal obligations. Nevertheless, for those who can navigate these potential pitfalls successfully, HMO investments promise a significantly stronger return compared to regular rental properties.
HMO Yields Across England
The study also revealed that HMOs offer higher yields in all regions of England, with the North East taking the lead. In the North East, the average HMO yield stands at an impressive 11.2%, which 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 outperforms the normal rental yield by 2.4%.
In Conclusion
Investing in HMOs can prove to be a lucrative venture for those willing to embrace the challenges that come with it. Higher rental income, increased tenant demand, and diversified tenant profiles all contribute to the impressive yields that HMOs offer. Whether you’re looking to invest in the North East, London, or anywhere in between, HMOs present an opportunity to nearly double your average yield and enjoy a robust return on your investment. While it’s not without its hurdles, the potential rewards make HMOs a compelling option for landlords seeking to maximize their profits.