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1. Higher Rental Yields Compared to Traditional Buy-to-Let Properties
HMOs on average generate significantly higher rental yields than standard buy-to-let investments due to multiple tenants paying rent for individual rooms within a single property. According to Castle Trust Bank, the average rental yield for HMO properties is 7.5%, which is 1.5% above the overall average for other property investments.
In some cases, well-managed HMOs can achieve yields of 10-15% or higher, compared to 4-7% for standard buy-to-lets. For example, a £250,000 property converted into a 5-bedroom HMO, with each room rented for £500 per month, yields 12% gross (£30,000 annual rent / £250,000 property value), compared to 7.2% for a traditional buy-to-let rented at £1,500 per month. This higher cash flow supports long-term financial stability, allowing investors to reinvest or cover rising operational costs.
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2. Strong and Growing Demand Driven by Housing Shortages
The UK faces a persistent housing shortage, with over 1.3 million households on social housing waiting lists in England, driving demand for affordable, flexible living arrangements like HMOs and co-living spaces. These properties cater to diverse demographics, including students, young professionals, and low-income working class tenants, particularly in urban towns and university Cities where housing affordability can be a challenge. A Spareroom Rental Index reported a 16% year-on-year increase in UK room rents in Q3 2023, with average monthly room rents reaching £721, reflecting high demand. Additionally, the private rental sector has seen a 105% increase in market value over the last decade, compared to a 75% increase for owner-occupied properties, underscoring the growing reliance on rental solutions like HMOs. This demand ensures high occupancy rates, reducing vacancy risks and supporting long-term investment sustainability.
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3. Reduced Risk of Income Gaps Through Multiple Tenancies
HMOs mitigate the risk of income loss due to tenant turnover, as multiple tenants provide diversified income streams. If one tenant moves out, the remaining tenants continue to pay rent, minimizing void periods. Data from the British Landlord Association indicates that HMOs yield over 4% higher rental returns than traditional buy-to-lets, partly due to this lower risk of income gaps. For social housing HMOs, leasing to housing associations or local authorities can further enhance stability, offering guaranteed rental income for periods of 5-10 years, even if rooms are unoccupied. This structure provides predictable cash flow, making HMOs a resilient investment against economic fluctuations and tenant churn.
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4. Potential for Capital Appreciation in High-Demand Locations
HMO investments in well-chosen locations offer strong potential for long-term capital growth alongside rental income. Cities like Manchester, with expanding job markets and educational institutions, have seen average annual property price increases of around 7-10% from March 2023 to March 2025. Over the past decade, the total value of homes in England has increased by 80%, with the private rental sector, including HMOs, growing by 105% in market value. Strategic locations near universities, hospitals, or employment hubs, such as Manchester or Liverpool, ensure sustained demand and property value growth.
Forth Action Invest is proud to collaborate with a leading technology platform to provide exclusive access to pre-vetted, high-performing HMO investments.
Each opportunity is carefully assessed for compliance, income security, and long-term viability, aligning with our commitment to sustainable and above-market returns. Current opportunities range from £150,000 to £250,000, strategically located across high-demand regions in the North West. To explore our portfolio and request access to our private investment portal.