The North East Is a Disaster for HMO Investment!

June 10, 2026

Written by Thomas Abram – Group Marketing Executive

For many investors, the North East is becoming one of the weakest places in the UK for HMO investment. Low property prices can make the initial numbers look attractive on paper, but those figures often rely on optimistic refurb budgets, inflated rental assumptions, ambitious capital growth projections and a market that is becoming increasingly saturated with similar HMO stock.

This does not mean every HMO in the North East will fail. It does mean investors need to be extremely careful before trusting a brochure, a spreadsheet or a deal packager’s headline yield. In our view, many North East HMO deals are now being sold far better than they are likely to perform.

At Foot Forward Property Investments, we have warned about this for years. You can read back through our blogs dating back years and see that our position has been consistent. The North East has been heavily promoted as a cheap route into HMO investment, but more and more investors are now realising the risks after parting with their own money and finding out the hard way.

Why the North East Looks Attractive at First

The North East often appeals to investors because the entry price looks low. When someone is comparing a terraced house in the North East with a property in a stronger rental market, the difference in purchase price can look huge. On the surface, that lower cost can make the yield appear stronger, the cash required appear lower, and the overall investment look easier to justify.

That is exactly why so many deal packagers, sourcers and developers have targeted the region. Cheap property is easy to package into a compelling spreadsheet. A low purchase price, a proposed HMO conversion, a high room-by-room rent and a projected valuation uplift can all be arranged into a brochure that looks impressive to an inexperienced investor.

The problem is that HMO investment does not succeed on a spreadsheet alone. It succeeds when the property is in the right location, designed for the right tenant profile, refurbished properly, priced accurately, managed professionally and supported by genuine long-term demand.

In many North East HMO deals, the numbers look good before the investor buys. They often look very different once the refurb starts, once the property enters the letting market, and once the investor realises they are competing with several similar HMOs on the same street or in the same small area.

The Initial Numbers Can Be Misleading

One of the biggest problems with North East HMO investment is that the initial figures often appear stronger than the reality.

A brochure may show a low purchase price, a controlled refurb budget, attractive rental income and a projected uplift. To a new investor, this can look like a high-yielding, low-risk opportunity. However, each of those assumptions needs to be challenged.

The purchase price may be low because the local market is weak, not because the investor has found a hidden gem. The rental income may be based on best-case room rates rather than current achieved rents in that exact street. The capital appreciation may be based on optimistic assumptions rather than proven comparable evidence. The refurb budget may be far too low for the actual condition of the property, especially if the packager has not fully understood the scope of works.

This is where many investors get caught. They are sold a deal that appears to work on paper, then discover that each part of the model was too optimistic. The refurb costs more. The works take longer. The end valuation disappoints. The rooms let for less than expected. The voids are higher than projected. The net return becomes far weaker than the headline figures suggested.

Deal Packagers and Developers Are Often the Real Winners

In our opinion, the clearest winners from many North East HMO investment deals are not the end investors. Too often, the people making money are the deal packagers, sourcers and developers who are paid before the investment has truly proven itself.

The investor carries the long-term risk. The investor funds the purchase. The investor pays the sourcing fee. The investor pays for the refurbishment. The investor waits for the property to be completed. The investor then has to deal with the reality of the rental market, the management, the competition, the planning risk, the licensing requirements and the long-term performance.

The packager, however, is often paid at the point of sale. Their profit is created by packaging and moving the deal, not necessarily by managing the asset for years afterwards. That creates a serious misalignment of interests.

A deal can look attractive because the brochure has been built to sell it. That does not mean the market will support it. That does not mean the rent is realistic. That does not mean the refurb budget is enough. That does not mean the valuation will stack. That does not mean the investor will achieve the return they were promised.

This is why investors need to look beyond the brochure and ask a simple question: who is actually being protected in this deal?

Low Property Prices Are Not Always a Strength

Cheap property is often marketed as an opportunity. In reality, cheap property can also be a warning sign.

A low purchase price may reflect weak local wages, limited demand, poor housing stock, low owner-occupier appeal, restricted capital growth or a street that already has too much rental accommodation. None of these factors are solved simply by turning the property into an HMO.

Many investors are drawn into the North East because the entry price feels accessible. They assume that because the house is cheaper, the risk must be lower. That is not always true. A cheap asset in a weak market can be harder to rent, harder to refinance, harder to sell and harder to grow in value.

A strong HMO investment is not just about buying cheaply. It is about buying correctly. The local tenant base must support the room rates. The street must support the product. The management model must be realistic. The local council position must be understood. The competition must be assessed carefully.

When cheap property becomes the main reason for investing, the investor may already be starting from the wrong place.

Refurb Budgets Are Often Too Low

Another major issue is refurbishment cost.

Many North East HMO brochures use refurb budgets that look clean, simple and controlled. In practice, HMO conversions are rarely simple. Older, cheaper properties can hide serious costs, especially when they require fire safety upgrades, layout changes, ensuite installation, heating upgrades, electrical works, insulation, ventilation, drainage, communal improvements and compliance work.

The brochure may use a low refurb estimate because the deal needs to look attractive. Sometimes the person packaging the deal does not fully understand the true scope of works. In other cases, the refurb allowance may be deliberately optimistic because a realistic figure would make the deal look far less compelling.

Once the investor has bought the property, the truth starts to come out. The roof needs work. The electrics are not suitable. The plumbing is more complicated than expected. The floor levels are poor. The room sizes do not work properly. The local HMO standards require more than expected. The fire strategy needs additional work. The contractor finds issues that were not priced in.

By that point, the investor is already committed. The sunk cost pressure is real. They either spend more money to finish the project or they are left with an incomplete asset.

This is how a property that looked affordable in the brochure can become much more expensive in reality.

Rental Figures Are Often Overstated

Room rents are another area where investors need to be careful.

A brochure may show room rents that appear achievable, but investors need to ask whether those rents are based on actual comparable evidence or optimistic market assumptions. There is a big difference between what a room is advertised for and what it actually lets for. There is also a big difference between one exceptional room in one exceptional property and the average rent achievable across a whole HMO.

In saturated markets, tenants have choice. If several similar HMOs are available nearby, tenants can negotiate, delay, compare and move quickly. Landlords may then need to reduce rents, offer incentives, accept weaker tenant profiles or tolerate longer void periods.

This is where the projected yield can fall apart. A spreadsheet may assume every room is let quickly at full market rent. The real world may involve lower rents, slower tenanting, more turnover and higher operating costs.

An HMO investor should never rely on the highest advertised room rent in the area. They should look at achieved rents, current live competition, room quality, tenant demand, employer base, transport links, local affordability and the number of competing rooms already available.

Saturation Is Becoming a Serious Problem

The North East has attracted a huge amount of attention from investors, sourcers and developers because the property prices are low. That attention has created a new problem: saturation.

When too many investors target the same towns, the same streets and the same tenant profile, the market becomes weaker. Every new HMO adds more supply. If tenant demand does not grow at the same pace, rents come under pressure and void risk increases.

This is one of the biggest dangers for investors buying into the North East now. They may not be buying into an emerging opportunity. They may be buying into a crowded market after the easiest money has already been made by the people selling the deals.

By the time the investor completes the purchase, finishes the refurb and launches the rooms, their property may be just another HMO on a street already full of HMO competition. That is not a strong investment position. It means the investor is fighting for tenants in a market where landlords may already be under pressure.

Saturation changes the risk profile. It makes tenanting harder. It weakens pricing power. It increases the importance of management. It can reduce resale demand. It can also attract more scrutiny from local residents and councils.

Article 4 Is Spreading Because Local Communities Are Pushing Back

The spread of Article 4 controls across parts of the North East should not be ignored. Article 4 Directions remove certain permitted development rights, meaning landlords may need planning permission before converting a family home into a small HMO.

This is not happening randomly. It reflects growing concern from local councils and residents about the concentration, quality and management of HMO properties in certain areas. Residents are increasingly unhappy about poorly developed and poorly managed HMOs appearing on their doorstep. Councils are under pressure to respond.

For investors, Article 4 creates another layer of risk. A deal that appears simple from a planning perspective can become more complex, more uncertain and more expensive. It may require a planning application. It may face local objection. It may be refused if there is already a high concentration of HMOs nearby. It may take longer than expected, which can affect holding costs, funding and the overall return.

Investors should not treat Article 4 as a minor technical detail. It can directly affect whether a proposed HMO conversion is viable.

A Poorly Developed HMO Damages More Than One Investor

There is also a wider issue that responsible investors should care about.

A poorly developed HMO does not just harm the person who buys it. It can affect tenants, neighbours, local streets and the wider reputation of the HMO sector. When HMOs are rushed, underfunded or badly managed, the result can be poor living conditions, increased complaints and stronger local resistance to future developments.

This is one reason councils become more cautious. When too many low-quality conversions appear in one area, the planning environment usually tightens. Good operators then face more scrutiny because poor operators have damaged trust.

For investors, this matters. Buying into a market with a growing reputation problem can create long-term risk. The best HMO investments are not built on quick packaging, thin refurb budgets and hopeful rents. They are built on proper due diligence, strong local knowledge, compliant development, responsible management and genuine tenant demand.

Why We Have Warned Investors About This for Years

At Foot Forward Property Investments, we have been clear about this issue for a long time. You can read back through our blogs dating back years and see that we have repeatedly warned investors about the risks of chasing cheap North East HMO deals.

For years, the North East has been promoted heavily by deal packagers because the numbers are easy to present. Low purchase prices create the illusion of value. High room rents create the illusion of strong yield. Projected capital appreciation creates the illusion of long-term growth. Low refurb budgets create the illusion of control.

Now, more investors are realising the reality. Unfortunately, many are only learning after spending their own money. They are discovering that the refurb cost was too low, the rents were too ambitious, the market was more saturated than expected, and the finished property is not performing like the brochure suggested.

This is exactly why experience matters. A strong property investment company should not just sell what looks good today. It should understand what is likely to perform over time.

What Investors Should Ask Before Buying a North East HMO Deal

Before buying any North East HMO investment, investors should ask detailed questions. These questions should be answered with evidence, not sales language.

What are the actual achieved room rents for comparable HMOs in that exact area? How many competing HMO rooms are currently available nearby? How many other HMOs are already operating on the street or within the local area? Has the refurb budget been prepared by someone who truly understands HMO conversions? Has a full scope of works been produced? Are planning requirements fully understood? Does Article 4 apply now, or is it likely to apply soon? Has the local council shown concern about HMO concentration? What happens if the valuation comes in lower than projected? What happens if the rooms rent for less than expected? Who manages the property after completion? Who is accountable if the figures do not perform as advertised?

If the deal only works when every assumption is perfect, it is not a robust investment.

The Brochure Is Not the Investment

A brochure is a sales document. It is not the market. It is not tenant demand. It is not a valuation. It is not a planning guarantee. It is not proof that the property will perform.

Investors should treat every brochure figure as something that needs to be tested. Purchase price, refurb cost, rent, yield, valuation and capital appreciation should all be challenged. If the deal packager cannot provide clear evidence, the investor should be cautious.

The danger with many North East HMO investments is that the brochure looks stronger than the asset. The investor is persuaded by the projected return, but the real property may not support those projections.

Good investing requires more than attractive numbers. It requires judgment.

Is Every North East HMO a Bad Investment?

No. It would be too simplistic to say every North East HMO is bad. There will always be exceptions. Some areas may have genuine demand. Some operators may manage properties well. Some landlords may own assets that perform acceptably because they bought at the right price, refurbished properly and understood the local market.

However, the broader trend is concerning. The region has been heavily promoted, heavily packaged and increasingly saturated. Article 4 controls are becoming more relevant. Resident opposition is increasing in some areas. Many investors are relying on figures that may not reflect reality.

For hands-off investors, especially those relying entirely on a deal packager or remote developer, the risks are now very significant.

Our View

In our opinion, the North East is not the smart HMO investment opportunity many people have been sold. For many investors, it is a weak and increasingly risky market where the low entry price hides deeper problems.

The people most likely to win are often the people selling the deal, not necessarily the investor buying it.

A serious investor should not be seduced by cheap property, inflated rent projections or glossy brochures. They should focus on long-term demand, realistic costs, genuine achieved rents, proper management, planning risk, tenant quality, local competition and exit strategy.

The North East may look good on paper. In practice, many investors are now discovering that paper profits do not always become real returns.

Frequently Asked Questions

Is the North East good for HMO investment?

For many investors, the North East is becoming a weak place for HMO investment because of market saturation, low property values, optimistic rent projections, refurb cost overruns and growing planning restrictions. Some individual deals may still work, but the region requires careful due diligence.

Why do North East HMO deals look so profitable?

They often look profitable because the purchase prices are low. This can make the yield appear attractive on a spreadsheet. However, the figures may rely on unrealistic rents, understated refurb costs and optimistic capital growth assumptions.

What is the biggest risk with North East HMO investment?

One of the biggest risks is oversupply. If too many HMOs are created in the same area, landlords compete for the same tenants. That can reduce rents, increase voids and weaken long-term returns.

Why does Article 4 matter for HMO investors?

Article 4 can remove permitted development rights for converting a family home into a small HMO. This means planning permission may be required, which can add cost, delay and uncertainty.

Are deal packagers the problem?

Not every deal packager is poor, but investors need to be careful. Some deals are packaged to look attractive on paper while the real risks sit with the investor. Investors should always check the assumptions behind the figures.

Should investors avoid the North East completely?

Investors should not make decisions based on broad labels alone. However, the North East now carries serious HMO investment risks in many areas. Any investor considering the region should carry out detailed due diligence before committing money.

This article is general information only and should not be treated as financial, legal, tax, mortgage or planning advice. Property investment involves risk, and investors should seek independent professional advice before making any investment decision.