HMOs Outperform Standard Buy to Let Investment

HMOs Outperform Standard Buy to Let Investment

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HMOs are significantly outperforming standard buy to let investment on both yields and equity returns in the North West.

A new report from the Mistoria Group noted a 12-15 per cent rise in the average gross cash returns before charges and voids on HMOs let to students or young professionals over the last five years. The results, specific to the North West, found that returns for standard buy to let investments stood at just 6-8 per cent.

Despite the fact that the initial capital investment on a HMO is considerably higher than a standard buy to let property, they have received a considerably higher return over the last five years. Average HMO returns were found to be around 13 per cent, in comparison to 7 per cent for standard investments.

Managing Director of The Mistoria Group, Mish Liyanage, commented: ‘If investors buy HMOs in the right location, right market and from the right agent in the North West, they will achieve much higher yields than a standard buy-to-let in the Midlands or South East.  Hence, HMOs provide a secure and an excellent performing passive investment to supplement your monthly income. However, every investor needs to be cautious and ensure they buy in the right street, as yields can vary dramatically by postcode.  HMOs within walking distance of a University, or just a short bus or train journey away, will usually command the highest rents.

Liyanage said that HMOs in Liverpool and Salford have attracted attention recently due to their high population of students and young professionals. Furthermore, Article 4 is not in operation in either location, allowing investors to convert a family home into a small share dhouse of up to six unrelated individuals without planning permission.

Liyanage explained: ‘For example, investors can acquire a high quality, three bed HMO which houses three students, from £120,000 upwards in Liverpool.  The return on investment is very attractive too, with 13 per cent (8 per cent cash rental and 5 per cent capital growth). The gross rent on the property will exceed £1,235 pcm, as each room is rented out. Larger rooms, open plan living and kitchen areas, ensuites, TVs, unlimited broadband, premium kitchen appliances and furnishings are the type of features that help to generate a high yielding HMO.’