HMO conversion could cost north of £41k but strong yields outweigh cost

According to research from Octane Capital, the average house price in England comes to £309,616 and the full cost of converting a single room to a HMO stands at £10,267.

This means that converting a four-bedroom property could cost around £41,067.

For investors looking to buy and convert a four-bedroom property, the full cost could come to around £350,863.

However, figures suggest that this upfront investment could be worth it as the average HMO commands a monthly rent of £592 or £2,372 per month if there are four occupants.

The average yield for a four-bedroom HMO is 8.1 per cent, which is nearly double the 4.4 per cent for a regular rental property.

The potential yield is the strongest in the North East at 11.2 per cent, followed by Yorkshire and the Humber at 9.9 per cent and East Midlands at 8.8 per cent.

At the bottom of the list yield-wise is London at 7.3 per cent, but this is still higher than average rental yield of 4.9 per cent.

Octane Capital’s CEO Jonathan Samuels 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.”