Where to find the best returns in the HMO sector

Posted by Mark Lloyd, Property Master Academy on 9 October 2019 | Comments

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The beauty of HMOs (Houses in Multiple Occupation) is that they enable you to generate multiple income channels with one single investment.

It’s a tempting proposition – a single property with five bedrooms gives you five separate income streams. If a room is vacant, you still have the cashflow coming in from the other rooms.

It’s not surprising a fifth of landlords intend to expand their portfolio with the addition of an HMO.* 

House in Multiple Occupancy

The benefits of HMOs

Kent Reliance's Buy-to-let Britain report reveals that landlords have been increasingly investing in HMOs to increase profits. One in five landlords now has an HMO property in their portfolio.**

According to the Complex Buy-to-Let Index, rental yields for an HMO property are often three times as high as yields for single lets. Their research showed HMOs produced average yields of 8.9% - the highest of all buy-to-let property types.***

What types of property are popular?

Terraced houses are the most popular type of property to buy. But while 50% of landlords plan to buy a terraced property, research from Precise Mortgages shows 40% of landlords plan to sell terraced houses in the year ahead.

This is compared to 8% of landlords who plan to buy blocks of flats compared to 5% who plan to sell. Only 8% of landlords holding HMOs in their portfolios plan to sell them.

Landlords with between 11 and 19 properties earn the highest average yields at 5.9%. Meanwhile, landlords who hold 11 or more properties have an average of three different types of property in their portfolio. 

Which regions offer the best yields

The report from Kent Reliance reveals landlords in the North West of England are receiving the best rental returns on buy-to-lets in the UK, followed by Yorkshire and the East Midlands. Returns in London and the South East are subdued.

The North West has average yields of 6.2% while Yorkshire and the Humber have average yields of 5.9%. The East Midlands offers yields of 5.4%. London and the East of England offered yields of 4.1% while the South East came last with yields of 4%

The best areas to invest in HMOs

HMOs are popular in cities like Liverpool where there’s a significant student population of around 70,000.

According to Moneywise, the Midlands university city of Nottingham gave the best buy-to-let yields in the country. This is largely due to the city’s considerable community of 37,000 students.

In the NG1 postcode, rental properties gave investors a highly enviable 11.99% yield, with neighbouring NG7 delivering 8.8% yields. ****

Alan Cleary, Managing Director of Precise Mortgages, sums it up: “In a time of market uncertainty, HMOs are an attractive option for professional landlords looking to maximise yields. As HMOs attract multiple tenancies, gross rental income tends to outstrip single lets meaning the rental income is more secure if one tenant leaves a void. The expansion of the HMO sector underlines how experienced landlords are rebalancing their portfolios.”

Would you like to learn more about property investment?

Register for our course: Houses of Multiple Occupancy (HMO) to find out how you could earn £30,000 - £35,000 income per year on every property.

Dates: 18th October 2019

Venue: Park Inn, Heathrow + One Day HMO Tour (date tbc)

Book Now! Limited to just 30 places


Sources:

* www.precisemortgages.co.uk

** www.kentrelianceforintermediaries.co.uk

*** Complex Buy-to-Let Index 2017

**** www.moneywise.co.uk