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Landlords & HMO

The HMO appraisal used to take a week

We ran a three-bed house in Stoke-on-Trent through Bricksmart's HMO appraisal. In seconds it showed that a six-room HMO could earn almost four times the monthly cashflow of a standard let.

Sayu
Sayu· Co-founder, Bricksmart
· 2 min read
Table comparing an HMO conversion with a standard buy-to-let on cash in, monthly cashflow, gross yield and return on cash.

Working out whether a house would make a good HMO used to take a week of digging. Check the council's Article 4 map. Count the licensed HMOs nearby. Work out how many rooms fit. Find a realistic room rent. Build a spreadsheet for the refinance. Bricksmart now does all of that in one search.

One house, start to finish

We searched for a three-bed, one-bathroom house in Stoke-on-Trent (ST4). Before any HMO maths, the property page showed the basics: a valuation of £212,000, a last sale price of £155,000, an estimated rent of £1,100 a month as a standard let, and an EPC rating of C.

Then the HMO view:

  • Six rooms. The house can be licensed as a six-person HMO with six double ensuite rooms.
  • No Article 4. The street isn't covered by an Article 4 direction, so converting it to a small HMO of up to six people falls under C4 permitted development. No planning application is needed, although you would still need an HMO licence from the council.
  • A busy patch. There are already 20 licensed HMOs within 500 metres. That is evidence of demand, but it also means competition for tenants.

The numbers

Valued as a commercial HMO at a 10% yield, six rooms at £613 a month each give an end value of £441,360 (£613 × 6 rooms × 12 months ÷ 10%). That is 108% more than the house is worth today.

Buying and converting the house costs £369,840 all in. Refinancing at 75% of the new value leaves £38,820 of your own money in the deal. Here is how that compares with buying it as a standard buy-to-let:

  • Cash in: £38,820 for the HMO, against £66,840 for the standard let.
  • Monthly cashflow: £1,224 against £316.
  • Gross yield: 10% against 6.2%.
  • Return on cash: 37.8% against 5.7%.

What the appraisal can't tell you

The numbers are a starting point, not a decision. The conversion budget, the room rent and the 10% yield are all assumptions to test against local evidence. Twenty licensed HMOs within 500 metres can mean strong demand or a saturated street, so walk it and talk to local letting agents before you commit. Lenders' appetite for commercial HMO valuations also varies.

What used to take a week now takes a search, which leaves the week for the checks that matter.

Try it

HMO Insights runs on every property in Bricksmart. Search any address to see how many rooms it could hold, whether Article 4 applies, how crowded the area is and what the conversion could return.

Notes

  • All figures come from Bricksmart's HMO appraisal for this property, as shown in the video.
  • End value assumes a 10% commercial yield. The refinance assumes a 75% loan to value.
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