Landlords looking to enter the HMO market face average conversion costs of more than £82,000 before management, compliance and ongoing maintenance costs are taken into account.
Research from residential property management specialist Rushbrook estimates the average cost of converting a property into a house in multiple occupation in England at £15,275 per bedroom.
With the average HMO in its analysis containing 5.37 bedrooms, that puts the estimated conversion bill at £82,084.
But Rushbrook also identified 2,507 existing licensed HMOs being marketed across England, providing investors with an alternative to buying and converting conventional residential property.
INVESTMENT COSTS
When the estimated cost of purchasing a suitable three or four-bedroom property is included, Rushbrook calculates that the average initial investment required to buy and convert a property into an HMO reaches £531,882.
That comprises an estimated purchase price of £449,798 and £82,084 of conversion expenditure.
London is the most expensive region, with Rushbrook estimating an average conversion cost of £92,796 and total purchase and conversion costs of £957,105.
The South East follows with estimated conversion costs of £90,552, while the South West stands at £89,737.
At the other end of the market, estimated conversion costs fall to £70,955 in the North East, £73,076 in the North West and £74,485 in the East Midlands.
READY-MADE MARKET
The 2,507 licensed HMOs identified as being marketed for sale have an average asking price of £340,264, although the figures are not directly comparable with Rushbrook’s estimates for purchasing and converting conventional properties.
The South East has the largest number available, accounting for 478 or 19.1% of the listings identified.
It is followed by the East Midlands with 416, the North West with 309 and the South West with 304.
Yorkshire and the Humber has the lowest average asking price for an existing licensed HMO at £203,146, followed by the North West at £211,817 and North East at £220,297.
London is considerably more expensive at an average £763,981.
Roma Sharma (main picture, inset), Managing Director of Rushbrook, says: “For those who would rather avoid undertaking a conversion, there is an established market of licensed HMOs available to purchase.
“However, buying an existing property doesn’t necessarily mean it will require no further work or investment, and landlords still need to carry out the appropriate due diligence.
“Whichever route investors choose, the initial purchase or conversion is only the beginning. HMOs bring additional management responsibilities, particularly around maintenance, tenant relationships and compliance, and ensuring these are handled professionally is essential to protecting the investment over the longer term.”
