We wrote this HMO sales update in mid-2021.
(update and August 2022 comments in brackets)
- South East HMOs 8-10% gross yield very popular – fringes of London or just outside the M25 with active investors from within London the keenest, followed by Hong Kong. (2022 Still VERY popular)
- Northamptonshire is popular for new landlords looking for long-term buy and hold, purchasing good quality up-and-running HMOs. Yield compressed by a percent in response. (2022 Still the case! Can’t go wrong with HMO sales in the large cities or where rent demand is booming like Bristol)
- Still appetite for the large Northern towns and cities with gross yields between 11-14% from Hong Kong mainly and South East, UK buyers. Looking for well-run, quality HMOs (4-7 beds sweet spot) with good management in place. Bad historical occupancy or inherent issues a no-no. (2022 Most locations have held their sale yield prices despite the increase in running costs, rents have gone up in lots of locations to off-set higher running costs)
- Large HMOs (10+ beds) proving popular across the board from people seeking higher ££ returns, usually HNW buyers (who aren’t ‘in property’ but investing cash) or small funds. Lots of these have supported living leases or are student HMOs but also popularity is still there for standard AST HMOs. (2022, watch out for BAD supported living leases, buyers like larger HMOs for economies of scale of utilities etc)
- Student HMOs in most locations (except where there are issues with occupancy due to accommodation changes locally) – popular due to the return of students, the security of the demand and the avoidance of council tax VOA worries. Low yields are available on sale to landlords. (2022 Student HMO still very popular, especially where international students are back too)
- HMOs with secure tenants – a shift in “what makes a good tenant” post-COVID as investors are happy with key workers over ‘professionals’. The HMOs that retained occupancy and bums on seats throughout the lockdowns are very saleable at the moment to overseas or UK buyers. (2022 ‘professional’ tenants the buzz word again as landlords see demand increase for rooms but, in reality, good quality blue-collar tenants still account for the bulk of Northern HMOs)
- REITs and Funds are buying again in collaboration with CICs and long lease signers BUT they are flaky still so be cautious over putting all eggs in the basket. We’ve shied away from recommending this to route all but a few clients this year. We expect a return in 2022 to a more predictable process. (2022 and there is more stability in this sector, despite lots of the REITs moving into self-contained over shared)
- Watch yields in places like Derby, Notts, Leeds, and Birmingham as they compressed to sub 9% for some sales over the last 6 months and lots of stock hit the market as a result. There have been so many new HMOs developed in these locations and tenant quality/demand is just about keeping up! To guarantee a sale to a quality buyer, I expect yields to drift closer to 10% gross unless the HMO is spot on in terms of location in the City etc (2022, definitely a yield drift as predicted in Derby, Notts etc as there was no value sub 9%).
We’re seeing, due to article 4, developers who once operated in Doncaster, now produce HMOs to sell on in, say, Gainsborough and those who were in Sheffield, develop in Rotherham… Nottingham developers move to Sutton and Mansfield etc etc
There’s been an upturn in the quality of HMOs in these secondary locations as a result and the tenants have responded BUT be careful of saturation.
Developing in cheaper, non-article 4 areas is attractive to investors as they can still flip on their HMOs via ourselves to overseas buyers but we’re closely monitoring tenant demand and saturation as these secondary locations don’t have the pull of the larger cities where the doors have now shut on the ‘HMO developing gold rush’.
(2022, we’ve seen a few of these secondary locations hit saturation now and the room rates reduce or lending come back lower than expected. It’s good to develop in the larger cities and inside article 4 if you have the know-how.)
Good HMOs always sell. Good can mean how well they’ve fared with COVID, how sustainable their occupancy is, the quality of the build, or how solid the new investor deems the location or part of the country.
The appetite from investors wanting fully operational HMOs is as high as its ever been, from the UK or overseas so it’s a great time to sell for a high yield price.
(2022, yep, still a strong sales market. Some buyers are put off by increasing operating costs but others are drawn in because HMOs still offer more than BTLs etc, especially where rent increases are happening. Overseas buyers are the key to 2022/23 as the UK climate gets tougher for many based here.)
If your interested in investing or selling an HMO, get in touch with the team at The Property Advantage today, contact us via info@thepropertyadvantage.co.uk
