New analysis from boutique debt advisory and investment firm Excellion Capital has revealed that converting standard homes into Houses in Multiple Occupation (HMOs) can generate gross yields of up to 12.5% – despite average conversion costs topping £68,000.
The research, which examined the economics of transforming a typical three- or four-bedroom property into a six-bed HMO, is likely to catch the attention of landlords seeking higher returns in a market challenged by elevated interest rates and tightening margins.
With the average sold price for a three or four-bed property in England currently standing at £444,273, and average HMO conversion costs running at £11,345 per additional bedroom, Excellion puts the total investment to reach a six-bed HMO at £512,340.
While this is no small outlay, the numbers suggest the returns justify the spend.
DOUBLE BUBBLE
At an average of £711 monthly rent per room, a six-bed HMO can generate a gross monthly income of £4,269 – equating to a 10% yield, nearly double that of traditional buy-to-let.
In regional markets such as the North East, yields rise to 12.5%, followed by 11.5% in the North West and 11% in Yorkshire & Humber.
London, where property prices remain a barrier, sees the lowest HMO returns at 6.6%. However, cities like Manchester (12.2%), Newcastle (11.9%), and Birmingham (10.6%) offer investors a compelling opportunity to tap into strong rental demand.
HIGHER LEVERAGE
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.
“HMOs, with a few exceptions, are very popular with lenders. Investors can often fund both acquisition and works with a bridge loan — offering faster completion and higher leverage.
“Many lenders offer up to 75% against the purchase price and 100% of the conversion costs.
“Crucially, choosing a lender that lends against the income-producing value can significantly improve loan terms. And if investors can scale to portfolios above £1m, they typically access better pricing and long-term income potential.”
