HMO investors can net a 10% return by turning a 3–4-bedroom property into a 6-bed, analysis from debt advisory and investment firm Excellion Capital has revealed.
This is despite the average cost of such a conversion coming to around £68,000.
The typical HMO in England commands a monthly rent of £711 per room which, when accounting for six occupants, comes to a total monthly income of £4,269.
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.
“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. “
The average sold price for a three- or four-bedroom house in England currently stands at £444,300.
Meanwhile, the cost of converting a property into an HMO works out at an average of £11,300 per bedroom.
HMO yields are even higher in some regions of England, as in the North East the average investor can expect a yield of 12.5% after converting a three or four-bed property into a six-bed HMO.