Best Cities for HMO Investments in the UK

The cornerstone of every successful property investment is location. For landlords, a property's location significantly influences its value and profitability. When it comes to investing in a house in multiple occupations (HMO), even in a diverse property portfolio, selecting the right location determines the outcome of the investment. Therefore, it's essential to thoroughly research and understand the target audience for HMO investments in top locations.

Navigating the complexities of the property and rental markets can be daunting. However, this blog offers valuable insights on why location is paramount in the rental market and lists the best UK cities for HMO investments in 2024. Dive in to discover new avenues for profitable investments in the student housing market.

What Is an HMO Property?

An HMO (House in Multiple Occupations) is a rental property where individual rooms are leased to multiple tenants, with shared access to communal spaces. These properties provide landlords with strong rental yields, lower void periods, and high tenant demand. Despite stricter regulations in recent years, HMOs in the UK remain a lucrative investment in the student housing industry, especially in popular areas like student towns.

Why Are HMO Investments a Smart Choice?

HMO investments are a highly attractive opportunity for landlords, offering significantly higher rental yields than standard buy-to-let properties. HMOs boast high demand and low vacancy rates, making them a profitable choice despite the stringent HMO licencing requirements and maintenance involved.

Despite challenges such as strict regulations and increasing mortgage rates, the allure of high profits has attracted a growing number of investors to the HMO market.

So, just how profitable are HMOs? Data from the British Landlords Association reveals that HMO landlords enjoy rental yields nearly double those of traditional buy-to-let properties. On average, HMOs yield over 7.5%, compared to the modest 3.63% seen with standard investments. It’s essential to remember that these figures can fluctuate with market changes, and the location of an HMO plays a significant role in determining returns.

The Best Cities for HMO Property Investments in the UK:

HMOs offer investors high rental yields and strong capital growth to achieve the best rental returns. Listed below are the top cities for HMO property investments based on rental demand and property prices:

#1 London: The Cosmopolitan Capital

London remains a top contender for property investment despite its pricey reputation. Its bustling rental market caters to students, young professionals, and families alike, ensuring steady demand for HMO properties. While the initial investment may be steep, the potential for significant returns and capital appreciation makes London a perennial favourite for savvy investors. West London particularly witnesses high rental yields from HMOs: Hounslow at 5.3%, Acton at 4.1%, and Ealing at 4.5% - outperforming conventional buy-to-lets (Source: Sourced Property).

#2 Manchester: The Cultural Hub

Over the past few years, Manchester has risen as a beacon in the UK property market. With a thriving economy, prestigious universities, and a vibrant cultural scene, the city draws in international students. Offering more affordable property prices compared to London, Manchester presents enticing rental yields averaging at 8.22% (Source: Dwell).  Prime HMO investment areas include the city centre, Salford Quays, and student hubs like Fallowfield and Rusholme.

#3 Birmingham: The Midlands Metropolis

Birmingham, the largest city in the Midlands, is experiencing a revival. The city entices property investors with ambitious redevelopment initiatives and superb transportation networks. Neighbourhoods like Digbeth, Edgbaston, and the city centre are ideal for HMO investments due to their proximity to amenities, universities, and business districts. With its upward momentum, Birmingham offers promising rental yields of about 6.6% and good potential for capital appreciation (Source: CIA Landlords).

#4 Liverpool: The Regeneration Haven

Liverpool's remarkable transformation in recent years has made it a hotspot for HMO investors. Extensive regeneration projects have breathed new life into the city, attracting students and tourists alike. Prime investment areas include the Knowledge Quarter, Liverpool Waters, and student neighbourhoods like Smithdown Road. Set against a backdrop of rich maritime history, these locales offer competitive property prices and attractive rental yields that typically exceed 7.8% (Source: Molo Finance).

#5 Leeds: The Urban Oasis

Up north, Leeds stands out as a promising spot for HMO investments. With its renowned universities, thriving financial sector, and lively culture, Yorkshire's largest city offers a dynamic investment rental market. As noted by Dwell, HMOs in Leeds boast an impressive average yield of 8.97%, ranking among the highest rental yields in the UK.

From trendy neighbourhoods like Headingley and Hyde Park to the bustling city centre, Leeds provides various areas with high rental demand. Investors can take advantage of the city's affordability compared to London or Manchester without missing out on attractive yields and long-term growth potential.

Factors to Consider for Strategic HMO Investments

Choosing the right location can make all the difference in the success of any HMO investment. Whether the goal is short-term rental yields or long-term capital gains, all investors must have a thorough understanding of the market. Here are some key factors to consider before investing in HMOs:

1. City proximity: Properties located within or near cities are highly appealing to HMO tenants. These areas often offer excellent local amenities, vibrant nightlife, job opportunities, and convenient public transport. Cities are prime locations for shared housing, which makes them perfect for HMO investments.

2. High-demand locales: Identifying high-demand regions for shared housing is a crucial step. Cities with a lack of affordable housing options, growing populations, or significant student presence can consistently attract tenants for an HMO property.

3. High rental yields: If the primary focus is maximising rental income, areas with the highest rental yields should be targeted. Look for cities with strong rental demand and relatively low property prices to enhance rental income potential.

4. University cities: Investing in HMOs located close to universities can be an intelligent strategy. The demand for shared housing is high in areas with large student populations. Students seek affordable, convenient housing close to campus. In addition to students, these areas also attract graduates and young professionals looking for shared housing.‍

5. Regeneration and trendy areas: Areas undergoing regeneration or becoming trendy can offer excellent capital growth potential. New infrastructure, amenities, and business developments draw in new residents, increasing demand for housing. Investing in these areas may also lead to rising property values in the long term.

Final Takeaways

The HMO UK property market offers abundant opportunities for savvy investors seeking to tap into the rental housing market. By targeting cities with strong rental demand, attractive property prices, and positive economic indicators, investors can harness the potential of HMO investments to create a lucrative portfolio. Focusing on city proximity, university cities, and trendy neighbourhoods can help maximise rental yield and ensure a steady flow of tenants.

Whether it's London's vibrant atmosphere, Manchester's cultural richness, or the dynamic environments of Leeds, Birmingham, and Liverpool - success hinges on strategic HMO investment decisions and a clear understanding of market trends. Start exploring these opportunities for a stronger property portfolio by listing with amber today.

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