Property investors could require more than £530,000 on average to acquire and convert a conventional property into an HMO, according to new research.
Analysis from residential property management specialist Rushbrook puts the average purchase and conversion cost across England at £531,882.
Of that, £449,798 represents the estimated purchase price of an eligible three or four-bedroom property, with a further £82,084 required for conversion.
The figures highlight the scale of the upfront capital requirement facing investors undertaking HMO conversion projects, before ongoing management, maintenance and compliance costs are considered.
CONVERSION COSTS
Rushbrook estimates the average cost of converting a property into an HMO at £15,275 per bedroom.
Based on an average HMO containing 5.37 bedrooms, that produces an estimated conversion bill of £82,084.
Costs vary significantly by region.
London has the highest estimated conversion cost at £92,796 and an overall acquisition and conversion requirement of £957,105.
The South East follows with conversion costs estimated at £90,552 and a total investment of £630,333, while the East of England has an estimated total requirement of £557,416.
At the other end of the market, Rushbrook puts average conversion costs at £70,955 in the North East, £73,076 in the North West and £74,485 in the East Midlands.
EXISTING HMOs
Investors can also avoid undertaking the initial conversion by acquiring an existing licensed HMO.
Rushbrook identified 2,507 licensed HMOs being marketed for sale across England, with an average asking price of £340,264.
The figures are not directly comparable with the estimated costs of buying and converting a conventional property, however, as individual properties will differ by size, location, condition and specification.
Yorkshire and the Humber has the lowest average asking price among the existing HMOs identified at £203,146, followed by the North West at £211,817 and North East at £220,297.
London has the highest at £763,981.
“Converting a property into an HMO is a substantial financial undertaking.”
Roma Sharma, managing director of Rushbrook, says: “Converting a property into an HMO is a substantial financial undertaking, and the conversion costs alone can represent a significant investment before landlords have even factored in the cost of purchasing the property.
“For those who would rather avoid undertaking a conversion, there is an established market of licensed HMOs available to purchase. However, buying an existing property doesn’t necessarily mean it will require no further work or investment, and landlords still need to carry out the appropriate due diligence.
“Whichever route investors choose, the initial purchase or conversion is only the beginning. HMOs bring additional management responsibilities, particularly around maintenance, tenant relationships and compliance, and ensuring these are handled professionally is essential to protecting the investment over the longer term.”
