11th September 2024
The best areas for HMO investment in the UK in 2024/25
If there’s one thing that investors all have in common, regardless of sector, it’s a shared priority for profitability – and property investors are no different. While they may be putting their money into a physical property rather than a business’s stock profile or a start-up company’s initial funding pot, putting profit first still remains an essential consideration for any savvy investor.
When it comes to property investing through buy-to-lets, one of the first questions is ‘what is the most profitable type of property?’ There’s no easy answer to this question (if there were, surely no one would ever diversify their property assets), but that hasn’t stopped us from doing our share of the research to help guide the potential property investors that attend our auctions in the right direction. We’ve considered the profitability of renovate-and-resell properties, traditional buy-to-lets and even holiday rental lots, but what about houses of multiple occupation (HMOs)?
HMOs present an exciting opportunity for property investors looking to get a higher rental yield on a single property, especially for those that aren’t afraid of the additional administrative costs that naturally come with renting out to multiple tenants. It’s certainly not an all-work, no-reward investment either, with considerable benefits including increased rental demand, more reliable income and minimised risk each attracting more landlords. We cover all the benefits, drawbacks, and technicalities surrounding how to become a HMO landlord in our ‘What is a HMO property?’, but if you’re ready to take the leap into this type of investment, stay with us here as we ask the question of where the best areas for HMO investment are in the UK.
Where is the best place to buy a HMO?
That age-old (and potentially over-used) phrase really says it all: Location, Location, Location. Where the property is located can mean the difference between a profitable investment in an affordable area with sustainable rental demand, and an overpriced property in a hard-to-reach location with poor commuter links. So, when it comes to finding the best areas for HMO investment, there are three key elements regarding location to keep in mind to avoid making a poor investment:
1. Is it close to a city?
Properties in close proximity to cities, or with strong commuting links, have a better chance of securing tenants than those which are more isolated. This isn’t just the case for students and young working professionals who need to consider travel to work and university either. The functional, leisure and lifestyle amenities cities provide also contribute to the attractiveness of a property for all types of tenants.
2. Is there high rental demand?
Owning a HMO property in an area with high rental demand can lessen the tenancy voids that renters can create through the year, with more potential tenants available to fill the space quickly. HMOs naturally present a safer option for landlords looking to minimise the time their property is spent empty as tenancy contracts can overlap, meaning there’s almost always someone in the property who is generating income, but it’s still important to pay attention to the demand in the area you’re considering.
The best way to do this is to first consider what type of renter you’re looking to attract. HMOs are particularly popular with students and graduate workers, so the best places to find high HMO renter demand is in university cities.
3. What are properties selling for in the area?
Looking at the average property prices in an area can give you a good idea of what sort of budget you’ll need to purchase a suitable property for your investment. The important thing to remember when doing this is that the overall average is likely not indicative of the type and size of property you’ll need to create a house of multiple occupation, as the average sold price will be skewed by smaller properties with less bedrooms.
As we cover in our ‘What are HMO properties?’ blog, a property needs space to house a minimum of three people from at least two households in order to be considered a HMO. This means that the property will need a minimum of two bedrooms (one per household), though the majority of HMOs include three or more bedrooms. This threshold means that excluding smaller properties, such as one and two bedroom apartments, is the best way to get a more accurate reflection of the average HMO house price in an area. In our research later in this article, where we’ve calculated the average HMO rental yields by location, we’ve taken this into account by excluding all sold prices for apartments in our calculations.
How to calculate ROI on a HMO
The most basic calculation for return on investment (ROI) for a buy-to-let property is annual income, divided by the initial investment cost, timesed by 100. In formula form, this looks like the below:
ROI =
Annual gain on investment
Initial cost of investment
When it comes to HMOs, the annual gain on investment isn’t just the income generated over the year by a single tenant, but the total amount gained from all of your tenants. When you come to calculate the potential ROI on a specific property before purchasing it, you can be more in-depth in your predictions by considering additional elements such as the number of rooms, the amount you can charge for each, and the average rental voids in the area (such as over the summer months for student-focused properties). You can even take into consideration the average annual expenditures for upkeep and maintenance if you want a more accurate yield estimate. The calculation can be as broad, or as exact, as you need.
However, for our own research on identifying the most profitable areas for HMO investment in the UK, we’ve kept things broad to ensure it can be used as a top-level indicator for all HMO landlords, both aspiring and established. As such, we’ve made the following assumptions for our calculations:
- Annual gain on investment is the median rental income per room for the area, timesed by three (working on the assumption that this is the average number of bedrooms in the houses sold, as this the most common number in the UK).
- Initial cost of investment is the average house price for the area, looking only at detached, semi-detached and terraced houses and excluding the prices of flats (as these are typically too small to be purchased as HMOs, though of course there are exceptions).
Top 20 HMO investment areas by rental yields
Below, we’ve broken down the top 20 cities in the UK with the best potential rental yields (following the conditions laid out above).
| Rank | City | Average Sold Price (Zoopla) | Median Income PCM (Home.co.uk) | Rental Yield % |
| 1 | Sunderland | £156,769.22 | £1,518 | 11.62 |
| 2 | Carlisle | £170,121.32 | £1,641 | 11.58 |
| 3 | Stoke-on-Trent | £157,545.22 | £1,485 | 11.31 |
| 4 | Kingston upon Hull | £146,588.87 | £1,365 | 11.17 |
| 5 | Doncaster | £169,336.30 | £1,494 | 10.59 |
| 6 | Liverpool | £199,285.18 | £1,740 | 10.48 |
| 7 | Salford | £260,389.24 | £2,100 | 9.68 |
| 8 | Bradford | £162,259.43 | £1,299 | 9.61 |
| 9 | Lancaster | £210,859.05 | £1,650 | 9.39 |
| 10 | Durham | £235,007.00 | £1,821 | 9.30 |
| 11 | Birmingham | £235,224.94 | £1,800 | 9.18 |
| 12 | Manchester | £272,505.77 | £2,061 | 9.08 |
| 13 | Peterborough | £249,283.19 | £1,875 | 9.03 |
| 14 | Lincoln | £211,458.51 | £1,560 | 8.85 |
| 15 | Glasgow | £278,556.26 | £2,025 | 8.72 |
| 16 | Newcastle upon Tyne | £256,698.57 | £1,821 | 8.51 |
| 17 | Preston | £202,126.53 | £1,419 | 8.42 |
| 18 | Derby | £225,375.06 | £1,575 | 8.39 |
| 19 | Dundee | £215,604.85 | £1,500 | 8.35 |
| 20 | Truro | £372,326.41 | £2,529 | 8.15 |
Key takeaways
- Invest in the North of England. Many of the cities with the best HMO rental yields are located in the North of England, with Sunderland, Carlisle and Salford in particular all having strong potential yields. With more development being put into these areas, investing in the North is becoming more and more popular, and landlords would be smart to jump on the trend while house prices are still relatively affordable.
- Big university cities, big rental demand. Students are the biggest demographic when it comes to looking for HMO tenants, as they’re typically cheaper to rent, more sociable and well situated for studies and nightlife. As such, it’s no surprise to see big university cities on the list of top HMO investment areas, including Birmingham, Glasgow, and Manchester.
- Avoid high property-price areas. In our research, we found that cities with very high average house sold prices didn’t always translate to good return on investment, as the median room rent PCM couldn’t keep up. This left cities like Brighton, Oxford and Cambridge with very low potential rental yields, despite their strong student populations.
| City | Average Sold Price (Zoopla) | Median Income PCM (Home.co.uk) | Rental Yield % |
| Brighton and Hove | £587,867.72 | £2,445 | 4.99 |
| Oxford | £621,389.61 | £2,400 | 4.63 |
| Cambridge | £697,856.63 | £2,310 | 3.97 |
Find a HMO investment property with SDL Property Auctions
At SDL Property Auctions, we do everything we can to help investors find their next profitable property. From helping identify areas for investment in articles like this, to advertising and auctioning exciting new properties across the UK, we work with property investors like yourself day-in and day-out, and are always available to help.
Whether you want to learn more about buying property at auction by visiting our other blogs, get in touch with our team for personalised support, or are ready to start your search by looking though our catalogue of HMO properties for sale, you’ll find everything you need here at SDL Property Auctions.