If you are torn between the choice of purchasing an HMO (house in multiple occupation) or a standard buy to let property, then a study in the North West of England should convince you that an HMO will probably outstrip a standard buy to let property on both the return on equity and cash yields.
New Report shows HMO’s are a Better Investment
The Mistoria Group published a report recently which revealed a twelve to fifteen (12-15%) percent increase in the average returns of gross cash before voids and charges on HMO’s, which young professionals or students were letting. The average gross cash returns on standard buy to let properties before voids and charges was only around six to eight (6-8%) percent.
This report covered specific areas in the North West of England. It has to be borne in mind that the initial investment into an HMO will be considerably higher than that of a standard buy to let purchase. But the returns over the last five years on HMO’s have been considerably higher.
On average HMO returns in the North West of England have been approximately 13% and standard buy to let properties have only managed an average return of approximately 7% in the same area of the country.
Performance of HMO’s may Vary per Region
As this report only focuses on the North West it is important to remember that the comparisons may differ in other regions. However it is likely that an HMO purchased in the North West would outperform returns that you could make from standard buy to let properties in other regions such as the South East and the Midlands.
There is nothing wrong with purchasing an HMO in the North West even if you don’t live in the area. Of course you will need to carry out all of the usual checks on the location that you are targeting because just like anywhere else different postcodes can provide different yields. The highest rents are likely to be found by purchasing an HMO near to a University or large employer where the transportation links are good.
Salford and Liverpool HMO’s Performing Well
The areas of Salford and Liverpool have attracted a lot of attention from UK property investors recently, as there are a growing number of young professionals and students in these locations now. Another advantage of these two areas is that Article 4 does not apply meaning that you can freely convert a family home into a shareable house for up to six people without the need for planning permission.
You could easily find a 3 bedroom HMO which is of good quality in Liverpool from around £120,000 and generate a gross rent of around £1,235 and upwards per month on this kind of property. An appealing HMO will have large rooms with modern kitchen appliances, ensuites, unlimited broadband, TV’s in the rooms etc.
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