UK HMO properties have become a favorite among investors in recent years, and for good reason: (1) they bring landlords higher rental income, up to 8-10% net rental income; (2) they have significant potential for appreciation; (3) the existence of "public sector HMOs" in the UK provides many landlords with a 5-7 year honeymoon period in which they can enjoy income at home without worrying about tenant fluctuation and maintenance issues.
However, there are risky 'UK HMO' properties on the market. For instance, improperly renovated properties may prevent landlords from obtaining an 'HMO license', there may be issues with 'squatting tenants', and fluctuations in tenants can give landlords headaches - all of these can pose risks to an investor's investment.
As a trusted UK property investment expert, MyHMO aims to analyze five examples of UK HMO investments from our successful clients. This will provide clear insights into the true potential of UK HMOs in terms of rental income, potential for property value appreciation, and management costs:
Example one: Eric Wong, purchased in April 2023
The landlord's HMO is leased by the government for 7 years (with a high chance that the government will extend the lease term). The income can reach up to 99,000 pounds in 7 years, not accounting for potential appreciation (the property price increased by 13% in the past 3 years). The net rental income is 76% of the purchase price.
📌 Location: Montreal Street, Carlisle CA2 4EE
Price: £131,000
Guaranteed Property Rental Return: 10.79% p.a.
Monthly Rent £1,178 PCM
Guaranteed Rent: £14,143 per year
Price increase in the area over the past 3 years (Land Registry: 13%)
Features:
- Obtained a 7-year lease provided by a government-approved housing agency, guaranteeing rental returns
- Tenants pay the rent on time every month via automatic bank transfer
- The housing agency covers all costs such as water, electricity, coal, and local government taxes
- The property will undergo a complete renovation to meet the requirements of the Housing Association HA
- Zero vacancies, zero management fees
Example two: Home of 5 young doctors
It is only a 10-minute walk from Salford Royal Hospital, so it can meet the needs of medical staff working in the hospital. All rooms were rented to a group of young doctors before the renovation was completed.
Five professionals have been renting this HMO since they started university. Because of its close proximity to the university and hospital, they have paid a total of 360,000 pounds in rent over 8 years, which is 120% of the purchase price. The net rental income can reach 288,000 pounds, which is 96% of the purchase price, not accounting for potential appreciation.
📌 Location: Kennedy Road, Salford (near Manchester City)
Price:：£300,000
Guaranteed Property Rental Return: 12% p.a.
Monthly Rent: £45,000 PCM
Price increase in the area over the past 3 years (Land Registry: 18%)
Features:
- The golden triangle of Salford University, Salford Royal Hospital, and Media City
- HMO destination 10-15% rental yield depends on the purchase model and leverage
- HMO management costs are low, averaging an additional 10% with VAT
Case Three: Mr. Kwok (Held by company)
Mr. Kwok has purchased three UK HMOs. The government has leased the landlord's HMO for 7 years, guaranteeing a rental income of 126,630 pounds over 7 years, which is 63% of the purchase price, not accounting for potential appreciation.
📌 Location: Lowerhouse Lane, Burnley BB12 6LP
Sale Price: £201,000
Guaranteed Rental Return: 9% p.a
Guaranteed Rent: £18,090 p.a.
Features:
- 5-bed HMO
- The costs of water, electricity and gas, management fees, council tax, and non-structural maintenance costs are all borne by the institutional tenants.
Case Four: Mr. Fung (Held by company)
Mr. Fung has purchased three UK HMOs. Taking the one in Rochdale, Manchester as an example, MyHMO has assisted the landlord in purchasing, renovating, and renting out the property. The HMO is leased by the government for 7 years, guaranteeing a rental income of 96,628 pounds over 7 years, which is 57% of the purchase price, not accounting for potential appreciation.
📌 Location: Halifax Road, Rochdale OL16 2SQ (Manchester)
Sale Price: £170,000
Guaranteed Rental Return: 8.12% p.a.
Guaranteed Rent: £13,809 p.a.
Features:
- 4-bed HMO
- The costs of water, electricity and gas, management fees, council tax, and non-structural maintenance costs are all borne by the institutional tenants.
Case Five: Mr. Chan and Mr. Tseng (Held by company):
Mr. Chen and Mr. Zheng have each purchased three UK HMOs. For example,Stalybridge, taking this one as an example, the HMO is leased by the government for 7 years, guaranteeing a rental income of 116,480 pounds over these 7 years, which is 90% of the purchase price, not accounting for potential appreciation.
📌 Location: St Georges Street, Stalybridge, Greater Manchester SK15 1BD
Sale Price：£130,000
Guaranteed Rental Return: 12.80% p.a
Guaranteed Rent: £16,640 p.a.
Features:
- 4-bed HMO
- The costs of water, electricity and gas, management fees, council tax, and non-structural maintenance costs are all borne by the institutional tenants.
Conclusion: Many UK HMOs still have significant investment potential. Government-leased UK HMOs are more secure than regular UK properties and HMOs
Before deciding whether to invest in a UK HMO, you can refer to the above examples and consider whether the cost and return of the HMO project are proportional. HMO properties require more management from the landlord than regular residential properties, and therefore provide higher returns. However, current UK inflation has led to increased HMO operating costs, reducing returns. Therefore, more HMO investors are now choosing to lease their properties to government house associations, which allows them to receive HMO rental returns without the need for active management and bearing operating expenses.
