"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"
- Robert Sadler - Excellion Capital
New data from Excellion Capital shows licensed HMOs achieve significantly higher prices than the national average
Licensed houses in multiple occupation (HMOs) in England are selling for up to 50% more than the average property, according to new analysis from investment and debt advisory firm Excellion Capital. The findings highlight the potential for investors to benefit not only from stronger rental yields but also from higher capital values at the point of sale.
This latest research follows earlier analysis from Excellion, which identified that HMOs can achieve rental yields of up to 12.5%, well above returns typically seen in the standard buy-to-let sector. The new data shows that the average licensed HMO in England sells for £334,260, a 13.1% premium over the general average house price of £295,654.
Excellion attributes this uplift primarily to the enhanced income potential of HMOs. Since landlords let rooms individually rather than leasing an entire property to a single household, they generate a higher cumulative rent. This makes licensed HMOs more appealing to investors, driving up demand and sale prices.
The price gap between HMOs and standard homes widens further in many of England’s largest cities. In Newcastle, for example, the average HMO sells for £315,890 compared to the citywide average of £211,160, a difference of 49.6%. Nottingham follows closely, with HMOs selling for 45.5% more than the local average.
Other cities also post notable premiums:
Liverpool: 39.9% higher
Birmingham: 36.4%
Bristol: 30%
Bradford: 29.6%
Sheffield: 28.1%
London: 26.4%
Leicester: 23.1%
Manchester: 22.7%
Leeds: 16.9%
Brighton: 8.8%
A key factor underpinning these sale price differentials is licensing. Properties that already have a valid HMO licence are more attractive to investors due to the time and cost involved in obtaining one. Even expired licences can add value, as they establish a precedent that may ease the path toward re-licensing.
“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." explained Robert Sadler, vice president of real estate at Excellion Capital. "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.”
He added, “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.
"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 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.”
