While the average house in multiple occupation (HMO) conversion cost is £41,000, it could prove a worthwhile investment in the long run, according to research by specialist property lending firm Octane Capital.
Octane Capital looked at the cost of converting a four-bedroom property into an HMO, what investors can expect as an average yield and how this compares with a regular rental property.
The average HMO yield currently was found to be 8.1%, higher than the average rental yield for a regular property.
The average house price in England currently was found to be £309,616.
The full cost of converting a single room to one fitting an HMO averaged £10,267, meaning fully converting a four-bedroom investment property into an HMO would cost £41,067.
The full cost of purchasing and converting a property into a four-bed HMO came in at an estimated £350,683 in England.
However, Octane Capital suggested this was a worthwhile endeavour in the long run.
The average HMO commanded a monthly rent of £593 per room, or £2,372 per month if converted for four occupants.
As a result, the average yield delivered from a four-bedroom HMO was 8.1%, compared with the average yield of 4.4% secured on a regular rental property.
HMOs showed stronger yields in all regions of England, with the North East topping the table.
Across the North East, the average HMO had a yield of 11.2%, the highest HMO yield of all regions, and some 6.3% higher than the average yield of 4.9% via a regular rental property in the region.
In Yorkshire and the Humber, the average yield secured via an HMO was 5% higher than a regular rental property, while in the East Midlands, HMO returns were 4.7% higher than the regular market.
Even in London where this gap is at its smallest, the average HMO returned a yield some 2.4% higher than the regular rental market.
Jonathan Samuels, CEO of Octane Capital, said: “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.
“Of course, they aren’t all plain sailing and not only will an HMO conversion require additional upfront costs, but they tend to come with higher operating costs, as well as a raft of additional compliance and legal obligations.
“However, for those who can successfully negotiate these potential pitfalls, HMO investment is sure to provide a far stronger return than they may otherwise find with a regular rental investment.”
