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Location, location, location. This phrase is often used in the property market to emphasise the power a property’s location has in influencing its value (and potential profitability if you’re a landlord.)
This mantra is spot-on if you’re considering investing in a house in multiple occupation (HMO) buy-to-let or growing your property portfolio. The location of your HMO can make or break your investment.
Before investing in the HMO market, it’s important to research and understand your target market and the best locations to invest in.
Here at Landlord Vision, we know that keeping up with the twists and turns of the property and rental market is hard work. That’s why we’ve compiled some helpful information highlighting why location is king in the rental market and compiled a list of the best areas of the UK to invest in an HMO in 2023.
Why Invest in an HMO?
Investing in a house in multiple occupation (HMO) is an attractive opportunity for landlords because HMOs tend to generate higher rental yields than your standard buy-to-let property. The benefits of HMO living also mean that HMO landlords usually experience high demand and low vacancy rates. Despite demanding more administration and maintenance, landlords willing to dedicate their time and energy often find HMOs to be a highly lucrative investment.
Admittedly, the stricter regulations governing HMOs have led some HMO landlords to sell their properties over recent years and deterred some potential landlords from entering the market. This, combined with higher mortgage rates, may seem off-putting, but it’s important to also take into account the fact that the resulting shortage of rental properties has increased demand and enhanced the potential profitability of HMOs.
But just how profitable are HMOs? Data from the British Landlords Association highlights the impressive rental yields experienced by HMO landlords, which are, on average, nearly double that of standard buy-to-let properties. According to the BLA, HMOs can yield an average return of over 7.5%, significantly higher than the modest 3.63% typically seen in traditional buy-to-let investments. However, it’s important to remember that these figures can fluctuate, as the housing and rental markets are constantly changing, and the area you invest in can also significantly impact these averages.
Who Lives in HMOs?
The first step towards pinpointing the ideal location for your HMO buy-to-let investment is gaining a clear understanding of exactly who your target audience is.
Although there are no hard and fast rules about who can live in a house in multiple occupation (HMO), some demographics are more likely to choose this form of accommodation than others.
To understand the type of person who may choose to live in a shared house, let’s think about what makes HMOs attractive living spaces. The main advantages of living in an HMO are affordability and the social side of house sharing. Renting a room within a shared house often proves more cost-effective than leasing an entire house, flat, or studio.
HMOs boast several other benefits that contribute to their popularity. Many are conveniently located in or near city centres, reducing commuting costs and providing easy access to urban amenities. Most HMOs come fully furnished, eliminating the expense and hassle of buying furniture. Additionally, they often offer short or flexible contracts, which is convenient for those who are unsure how long they will stay in the area.
The appeal of HMO living is not confined to a single demographic; in reality, anyone at any stage of life might find an HMO arrangement appealing. However, certain demographics gravitate towards these living arrangements more than others.
Although HMOs cater to a broad range of people, the following groups commonly inhabit these living arrangements.
- Students – With budget constraints and a desire for social connections, students often opt to live in HMOs.
- Young professionals and graduates – As they launch their careers, this demographic appreciates the cost-savings and social side of HMO living.
- Migrant workers – Seeking affordable housing whilst settling into a new country, migrant workers often choose HMOs.
Therefore, HMO landlords are wise to invest in areas with a large population of young people, students, and new graduates.
What Kind of Location is Good for Investing in an HMO?
The location you choose for your HMO investment can make or break its success. It’s crucial to conduct thorough research and carefully consider your investment goals – are you more concerned about short-term rental yield or long-term capital gains? Here are some factors to consider when selecting a location for your HMO investment:
Proximity to a City is appealing to HMO tenants
Properties located within or near cities are highly appealing to the target market for HMOs. These areas often boast excellent local amenities, vibrant nightlife, employment opportunities, and convenient public transport links. Cities have a high demand for shared housing, making them ideal for HMO investments.
Look for Areas with High Demand for Shared Housing
Identifying areas with high demand for shared housing is crucial for a lucrative HMO investment. Look for cities with a shortage of affordable housing options, such as cities with growing populations or areas with a significant student population. These locations typically provide a steady stream of tenants for your HMO property.
High Rental Yields
Target areas with the highest rental yields if your primary focus is maximising rental income. Identify which cities have strong rental demand and relatively low property prices to maximise your rental income potential.
University Cities are Ideal for HMO Landlords
Investing in HMOs in university cities can be a smart strategy. Demand for shared housing is generally high in areas with a large student population. Students often seek affordable and convenient housing options close to campus. Investing in an HMO in a university city can be a smart move even if you don’t want to rent to students as these locations usually have a large population of graduates and young professionals looking for shared housing too.
Regeneration and Trendy Areas Are Great for HMO Investors
Areas undergoing regeneration or experiencing an upswing in popularity can offer excellent capital growth potential for your HMO investment. These locations often witness increased demand for housing as new amenities, businesses, and infrastructure developments attract new residents. Investing in these areas also means you may benefit from rising property values in the long term.
Remember, conduct thorough market research, check local demand, and consider your investment goals when choosing the right location to invest in an HMO buy-to-let. Taking a measure and careful approach now can dramatically improve your future return on investment.
The Most Lucrative UK Hotspots for HMO Landlords to Invest in
With everything we’ve learnt in mind, let’s explore some of the top UK hotspots for HMO investment in 2023.
The Most Lucrative Hotspots in Northern England for HMO Landlords
While house prices are currently falling in some areas of southern England and Scotland, Savills predicts a 24.3% growth in property prices in the Northwest and Yorkshire regions by 2026, making the north of England an attractive place to invest in an HMO for those interested in capital growth.
Manchester
As the largest region outside of London, Manchester offers a thriving economy, robust job market, and vibrant student population. With five higher education institutions and over 90,000 students living in Greater Manchester, the city presents an exciting opportunity for HMO landlords. According to Property Investments UK, house prices in Greater Manchester are also 25% less than the national average – now that’s good value for money!
The average house price in Manchester, according to Zoopla, is £252.153.
Liverpool
Liverpool, another bustling northern city, has recently undergone a revival, with several regeneration schemes transforming areas like Liverpool Docks and giving the city a new lease of life. With four universities and a student population of over 70,000, Liverpool has a very young population, with over 42.5% of its residents under 30. A young population, thriving student scene, and bustling economy make Liverpool an attractive place to invest in an HMO.
The average house price in Liverpool, according to Zoopla, is £196,909.
Leeds
Leeds, the UK’s fastest-growing economy according to Leeds City Council, is set to grow by a further 21% over the next ten years. With a diverse economy, including a large banking and finance sector, Leeds creates many job opportunities for young professionals and graduates starting their careers. ITV recently reported that Leeds was tipped to be one of the top cities for employment growth by the end of 2023. Leeds is also home to over 39,000 students across five universities, making it an excellent location for a student HMO.
The average house price in Leeds, according to Zoopla, is £255,169.
Newcastle Upon Tyne
According to HM Land Registry UK, the north-east of England is currently the cheapest place to invest in property in England. Newcastle, the largest metropolitan city in the North East, is embracing an economic transformation, with billions of pounds invested into regenerating the area and increasing employment opportunities. Newcastle also has a student population of over 42,000. House prices are still low in Newcastle but are steadily increasing and are predicted to continue doing so, making it a great time to get a good deal on an HMO in Newcastle.
The average house price in Newcastle, according to Zoopla, is £233,495.
Bolton
Technically part of Greater Manchester, we felt that Bolton is worthy of its own mention. Bolton is one of the UK’s largest towns; it is an up-and-coming location with a £150 million development underway to create more housing and employment opportunities. The University of Bolton ranks in the UK’s top 5 for teaching quality and has about 11,000 students, with this figure expected to grow rapidly over the coming years. Low house prices, well below England’s national average, allow landlords to benefit from capital growth and high rental yields when they invest in an HMO in Bolton.
The average house price in Bolton, according to Zoopla, is £196,502.
HMO Hotspots in the Midlands
Birmingham
Birmingham has one of the fastest-growing economies in the UK, with £8 billion spent on regenerating the city over recent years. Known as one of the largest business centres outside the capital, Birmingham is home to many public sector employers. It is a busy university city, with over 80,000 students studying at one of its eight universities. Birmingham is the youngest city in Europe, according to Birmingham City Council, with under-25s accounting for nearly 40% of the population! A growing population and a shortfall of houses mean demand for HMO rental properties in Birmingham is likely to continue growing over the coming years.
The average house price in Birmingham, according to Zoopla, is £251.841
Stoke-on-Trent
Situated near the country’s centre, Stoke-on-Trent offers easy access to big cities like Liverpool, Manchester, Birmingham, Derby, and Nottingham. Recently, ITV reported that Stoke had been tipped as one of the top cities for employment growth by the end of 2023. Stoke also has two universities and a student population of around 25,000. It is often named one of the most affordable cities for buying property in (it is the most affordable on our list), making it an attractive option for HMO investment.
The average house price in Stoke-on-Trent, according to Zoopla, is £158.517.
Where to Invest in HMOs in Southern England
Bristol
An article in the Independent named Bristol as the best place to live for under 26s outside of London. Why is Bristol so popular with young people? Well, it’s a vibrant and trendy city with not one but two world-class universities. It is also an environmentally conscious area, the UK’s only European Green Capital. Bristol’s economy is also thriving, and it has a highly skilled workforce and excellent employment opportunities for graduates and young professionals. According to property investment company Aspen Woolf, Bristol is forecast to experience house price growth of 17% between 2023 and 2025, making now a great time to bag an HMO in the area.
The average house price in Bristol, according to Zoopla, is £393,575.
Milton Keynes
Milton Keynes has a fast-growing population and has even been dubbed as ‘the most successful new city in the world’ according to some reports! Granted city status in 2022, Milton Keynes has a fast-growing population and is one of the most economically productive areas in the UK. According to Money.co.uk, between 2021 and 2022, Milton Keynes was in the top 10 areas in England and Wales for house price growth, with houses increasing in value, on average, by 16.2%. Rental demand is also high in the city, with an 8.9% increase in rent reported. A growing population, high demand for rental property, and increasing house value make Milton Keynes a profitable area to invest in an HMO.
The average house price in Milton Keynes, according to Zoopla, is £347,970.
London
According to the Buy Association Group, London has the highest number of HMO rental properties in the UK. However, the average cost to buy an HMO in the capital is £826,209, making it an unattainable location for many landlords. However, if you have the means to invest in London, some of the best areas for HMOs are Barking and Dagenham and Walthamstow; let’s find out why.
Barking and Dagenham
Barking and Dagenham is in Zone 4, about 9 miles east of Central London. Property prices here are much more affordable than in many other districts of London, but it has excellent transport links to the rest of London, making properties in this area excellent value for money.
The average house price in Barking and Dagenham, according to Zoopla, is £362,889.
Walthamstow
Walthamstow can be found in Zone 3. It is an up-and-coming area that has recently become popular amongst young professionals. Properties in the area currently offer good value for money, but prices in the area are on the rise. It is also home to Europe’s longest outdoor street market!
The average house price in Walthamstow, according to Zoopla, is £573,976.
Welsh Hotspots for HMO Investors
Cardiff
Cardiff, Wales’s capital, is projected to see a 20% increase in population between 2019 and 2039, creating demand for more housing. According to the PwC’s Good Growth for Cities index, it is the fastest-improving city in the UK. Cardiff has three universities and a student population of over 40,000. Property Investor Today reports that since 2010/11, there has been a 137% increase in purpose-built student accommodation in Cardiff, thanks to huge demand. As well as the high demand for student housing, many people renting in Cardiff are young professionals working within the city, making it an ideal city for HMO investment.
The average house price in Cardiff, according to Zoopla, is £296,737.
The Perfect HMO Hotspots in Scotland
Edinburgh
Edinburgh, Scotland’s capital, is the UK’s most economically productive city outside London. According to a report by ITV, Edinburgh is tipped to be in the top 10 cities in the UK for economic and employment growth by the end of 2023. Edinburgh also boasts six universities and over 55,000 students, with full-time students comprising over 12% of Edinburgh’s population. There is strong demand for shared housing in Edinburgh, and rental yields in the city are consistently high.
The average house price in Edinburgh, according to Zoopla, is £378.191.
There you have it! We hope we have you convinced about why location is such a big deal when investing in HMOs. Choosing the right area to invest in means the difference between a rental property constantly in demand versus one struggling to attract tenants.
While we’ve given you a peek at some of the top areas for HMO investment in 2023, remember that research is your best friend. Market conditions change, and so can the appeal of certain areas for renters.
Becoming an HMO landlord is an exciting journey, full of potential for impressive returns. If you keep location at the heart of your HMO investment strategy, you’ll be on your way to rental success. Good luck!
