HMO Investment Yields: Regions Compared 2024

Investing in shared houses is a hot topic for property investors looking to maximise rent from letting properties.

Research by finance company Excellion Capital has analysed the cost of converting three or four-bedroom homes into six-bedroom houses in multiple occupation (HMO), giving landlords some idea of the yield they can expect.

Here's how researchers crunched the numbers:

• Take the buying price of the house - the current average three or four-bedroom home averages £444,273.
• Add the conversion cost to an HMO, which is an average spend of £11,345 per letting room, or £68,067 for a six-bed conversion.
• That makes the all-in development cost £512,340.
• An HMO letting room brings in an average of £711 rent a month, making £4,269 monthly for a six-bed HMO.
• These figures give an average yield of 10 per cent, which is double the average buy-to-let yield of five or six per cent.

Yields do differ regionally. The rule of thumb is that places with the most expensive property return the lowest yields, while towns and cities with cheaper homes provide a greater return.

Best and worst returns

HMOs in London have yields of around 6.6 per cent, while the South East posts yields of 8.1 per cent.

The farther north an investor moves, the higher the yield. In Manchester, landlords can earn a 12.2 per cent annual return, while Birmingham has yields of 10.6 per cent.

However, the best yields are 12.5 per cent in the North East, 11.5 per cent in the North West, and 11 per cent in Yorkshire and Humber.

The Excellion report says: "A lot of property investors in the residential space are turning 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 popular with lenders because the conversions tend to be relatively light; investors can usually fund both the acquisition and the work with a bridge loan."

HMO licence numbers falling

Separate recent research by online property manager COHO suggests the cost of an HMO in London is £660,427, with a total yearly rent of £40,169.

Using data from the Office for National Statistics (ONS), COHO estimates the UK HMO market consists of 182,533 properties worth £78 billion, generating £6.3 billion a year in rent. One in four HMOs has five or more renters, while the rest have three or four.

Despite the bustling market, local councils are granting fewer HMO licences. In 2024, local planning authorities granted 23,947 HMO licences, which was 1,498 down on 2023.

Hotspots include Oxford, where 1,823 licences were granted - up from 1,341 in 2023; 1,588 new licences for Bristol; and 2,515 in Lambeth, South London.

More than a thousand HMO licences were issued in the London boroughs of Haringey (1,158), Southwark (1,087), and Hammersmith & Fulham (1,007).