Yields of up to 12.5% and strong sale premiums make HMOs a standout in the BTL sector
Houses in multiple occupation (HMOs) in England are commanding significantly higher sale prices compared to standard homes, in some cases reaching nearly 50% more than local averages, new analysis from Excellion Capital has indicated.
The findings build on earlier data from the London-based investment and debt advisory firm, which highlighted the potential for HMOs to achieve rental yields as high as 12.5% — well above those in the broader private rental market.
According to Excellion's latest review of sold price data, the average licensed HMO in England changes hands for £334,260, which is 13.1% more than the national average home price of £295,654.
The firm attributes this price gap largely to the income-generating nature of HMO properties. Unlike traditional rental units, landlords let out individual rooms, boosting rental returns and appeal for income-focused investors.
In several urban areas, this price premium is especially pronounced. For example, HMOs in Newcastle are selling for an average of £315,890 — 49.6% more than the city’s average house price of £211,160. Nottingham follows closely, with HMO properties averaging £282,942, a 45.5% increase over standard property values.
Other cities seeing strong HMO premiums include Liverpool (39.9%), Birmingham (36.4%), Bristol (30%), and Bradford (29.6%). The trend also extends to Sheffield (28.1%), London (26.4%), Leicester (23.1%), Manchester (22.7%), Leeds (16.9%), and Brighton (8.8%).
The added value is closely linked to licensing. In England and Wales, renting out an HMO legally requires a license. Properties already sold with such licenses in place are seen as ready-to-go investments, which can add a premium. Even if a license has expired, prior approval may streamline the renewal process.
“We have previously spoken about the yield opportunities available from snapping up relatively cheap homes and converting them into HMOs, especially in England’s regional cities,” said Robert Sadler (pictured), vice president of real estate at Excellion Capital. “Now, this additional research shows that investors who wish to buy a property, carry out the necessary conversion work, and then sell it on can also consider the sector to be one of plentiful returns.
“In fact, we have worked with investors who have purchased a property, carried out the necessary conversion work and straight away seen the value of the property increase by at least a third. This is a tremendous value add over what can be a very short period of time.
“This property can, of course, be sold straight away for a good return, but those investors who choose to keep hold of the asset and benefit from the 12.5% yield we previously reported, will then also benefit from the reliable capital appreciation of their asset over the years before choosing to sell it, at which point they’ll benefit from a sale premium of up to almost 50% provided it comes with an HMO licence in place. By opting to finance this endeavour using debt, investors benefit from positive leverage which, when done right, significantly boosts their return on equity.”
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