Buying existing HMOs is a safer bet, says Taylor – six-bedroom properties can be picked up for £200,000 to £250,000 (or four-bedroom houses for £150,000 to £160,000, though these are less cost-efficient).
It’s much easier to get lending on these kinds of properties, so on average that’s a minimum deposit of £60,000, plus £7,500 in stamp duty. You’ll save on the conversion costs but you will still need to refurbish the property and buy furniture, so add on an extra £30,000, giving you a total bill of £97,500.
Even in existing HMOs, there can be capacity to add substantial value, particularly if there is space to extend or build into a loft. En-suite bathrooms are also rare in Newport HMOs, says Taylor; “immediately that will put you in the top tier for rents (so £450 per month), and you will never have a problem renting it out”.
Another option is buying commercial or mixed-use property, such as shops or offices, says Taylor. “You’re highly likely to get planning to convert and you can secure a property for much less.” Though you will need experience to get specialist commercial financing.
While a six-bedroom HMO will cost about £225,000 (£37,500 per unit), Taylor recently purchased a 12-unit mixed-use block for £375,000 (£31,250 per unit).
When converted to a high standard, each double bedroom will rent out for £450 per month, he estimates. In this case, the units are self-contained, which means higher rents. And having them all in one building makes management easier.
South West England
In the South West, 25pc of landlords own an HMO, according to the NLA. The HMO market is centred primarily on Exeter, as well as Plymouth and Torbay, says Iain Maitland, South West Landlords Association President. These are where the yields are highest.
In Exeter, tenant demand comes from the university’s student populations, says Jon Carden, managing director of Cardens Residential.
As such the area surrounding the St James Park football ground in the city, between Old Tiverton Road, Union Road and Pennsylvania Road, and near the campus is one of the strongest, says. In this area, rents can reach £200 per week per room, according to Matthew Ewings, Winkworth estate agent’s Exeter office.
This part of town is known locally as the “golden triangle”, says Carden.
He estimates that 60pc of investors come from outside the region, primarily from London and the Home Counties. They typically build up portfolios of more than 15 HMO properties.
Ewings adds that yields have stayed strong as house prices have increased and rents have increased at the same rate and as a result, yields of between 7p and 8pc can be expected.
