Because of the “plentiful returns they offer”, houses in multiple occupancy (HMOs) are selling for up to 50% more than the average home, according to Excellion Capital’s VP Robert Sadler (pictured).
Research from the investment firm reveals the premium, though, varies substantially between the regions. It is highest in Newcastle at 49.6%, where the average HMO sells for £315,890 compared to £211,160 for the standard home.
Nottingham is in second place at 45.4% above the average, Liverpool is third at 39.9%, Birmingham is fourth at 36.4%, Bristol is fifth at 30% and in London, the premium is 26.4%. The average across all the regions is £334,260, which is 13.1% more than the average house price (£295,654).
The premium
According to Sadler, these premiums are occurring because HMOs generate rental yields that are nearly double the average at 12.5%. And, at the same time, if a landlord is converting a property into an HMO, its capital value will substantially increase, too.
Sadler told Mortgage Solutions: “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.
A tremendous value-add over what can be a very short period of time.”
“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.”
He adds: “Now 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 selling 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.”