The average cost of converting a standard three or four-bedroom property into a six-bedroom house in multiple occupation (HMO) is £68,067, according to recent research conducted by Excellion Capital.

With the average purchase price for a three or four-bedroom property in England currently at £444,273, the total initial investment required—including conversion—stands at approximately £512,340.

Once converted, the average HMO in England generates £711 in monthly rent per room, equating to £4,269 for a fully let six-bedroom property. This results in an average gross yield of 10%, notably higher than the typical 5–6% yields found in the broader residential market.

Regional differences remain significant. The highest average yields are seen in the North East at 12.5%, followed by the North West at 11.5%, and Yorkshire and the Humber at 11%. In contrast, London records the lowest average yield at 6.6%, while the South East returns 8.1%.

In specific urban markets, yields remain strong. Manchester reports an average gross yield of 12.2%, with an average resale price of £329,163 and monthly rental income of £4,050. Newcastle achieves an average yield of 11.9%, while Birmingham averages 10.6%.

Excellion Capital notes that the cost of conversion varies depending on the condition of the property. Minor cosmetic works and compliance upgrades for HMO licensing are significantly less expensive than more substantial refurbishments, which may include damp treatment or the installation of new kitchens and bathrooms.

Robert Sadler, vice president of real estate at Excellion Capital, commented: “We are seeing a lot of property investors in the residential space turn their attention to the bustling HMO market, especially in the regions.

“Particularly outside of London and our other major cities, investors are snapping up relatively cheap three or four-bed terraced homes and converting them to six-bed HMOs with extraordinary results when it comes to returns and yields.”

Sadler also outlined the advantages of HMO financing: “HMOs, with a few exceptions, are very popular with lenders. Because the required conversion works tend to be relatively light, investors can usually fund both the acquisition and the works with a bridge loan.

“This is ideal as bridge loans complete much faster than development loans and require much less oversight by the lender.”

He continued: “Another advantage is that lenders provide very high leverage on HMO bridge loans (75% against the purchase price plus 100% of costs).

“This means that the upfront equity requirement for the investor can actually be quite low compared to other investments.

“It is important here to choose a lender that will measure the loan against the income producing value rather than the vacant value as this can make a big difference to the final loan amount.”

Regarding longer-term financing, Sadler added: “Once the conversion is complete, the investor can repay the loan with very favourable investment finance (best rates below 6% fixed). Finally, if the investor can buy portfolios of HMOs and get to a loan amount of £1m or above, they can usually obtain better pricing from lenders. Large portfolios of retained HMOs can create a lucrative long-term income for investors.”