A costly HMO conversion could prove a worthwhile long-term investment, with the average 8.1% HMO yield far higher than the 4.4% generated by a regular rental property, according to research by Octane Capital.

The bill for converting a single room to an HMO currently averages £10,267, meaning that fully converting a four-bedroom investment property - typically worth £309,616 in England into an HMO - would set landlords back £41,067.

While this may seem like a steep upfront investment, the figures suggest it’s a worthwhile endeavour; Octane Capital explains that the average HMO commands a monthly rent of £593 per room, or £2,372 per month if converted for four occupants. As a result, the average yield from a four-bed HMO is 8.1%.

Stronger yield

HMOs provide a stronger yield in all regions of England, with the North East topping the table at 11.2%, 6.3% higher than the average yield of 4.9% from a regular rental property. In Yorkshire and the Humber, the average yield secured via an HMO comes in 5% higher than a regular rental property, while in the East Midlands, HMO returns are 4.7% higher than the regular market.

Even in London, the average HMO is estimated to return a yield some 2.4% higher than the regular rental market.

Octane Capital’s CEO Jonathan Samuels says an HMO conversion requires additional upfront costs, but tends to come with higher operating costs, as well as a raft of additional compliance and legal obligations.

However, he adds: “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.”