The most recent report from The Mistoria Group has revealed that HMOs are substantially outperforming more standard buy-to-let investments for both yields and returns in the North West.
Analysis shows that the average gross cash return before any charges or voids on HMOs with student or young professional tenants have risen to 12-15% over the last five years. This is in comparison to an average gross return of between 6-8% on a standard buy-to-let in the North West.
HMO investors have seen a substantially higher return than standard buy-to-let investors during the last five years, with 13% in comparison to 7%. This comes despite the fact that the initial capital investment in a HMO is greater than for standard buy-to-let.
Mish Liyanage, Managing Director of The Mistoria Group, observed: ‘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.’
‘HMOs in Liverpool and Salford have become very popular with investors, as both cities have a high population of students and young professionals. Also in both Salford and Liverpool, Article 4 is not in operation, so investors can convert a family home, or a home used by a single person (C3 -dwelling house/flat) to a small-shared house of up to six unrelated individuals (C4 –HMO), without any planning permission,’ he continued.
HMOs in the North West outperforming standard buy-to-lets
Liyanage went on to note that each investor must show caution when choosing their purchase location:
‘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.’
‘Whilst the market conditions in many areas are becoming more developed and competitive, a HMO property with a superior spec can deliver landlords and investors an average gross rental yield of 13%, leveraged return on investment of 35% plus, before any charges and voids.’
‘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% (8% cash rental and 5% 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.’