Renting out your buy-to-let to students may be a better investment than the traditional route of renting out to professional tenants.
Traditionally, the demand for student digs has been limited by strict caps on the number of students each university can accept. But this year will be different. The Government has lifted the limit on admissions, allowing a record 450,000 students to begin university this September. While most of these students will live in halls of residence for their first year, they will soon begin looking for rental accommodation for the 2016 – 2017 academic year.
This rapid growth in demand provides a fantastic opportunity for landlords. Between 2010 and 2013, student rents increased by 25%, according to Unipol, and increasing demand from students should lead to higher rents still.
With this in mind, how can you student-proof your property?
What you need to consider before becoming a student landlord
There are a few unique challenges when you decide to rent out to students meaning you’ll have to get past some red-tape.
Firstly, your property must comply with the latest HMO (Houses in Multiple Occupations) regulations. This will be much easier if your property has less than five occupants, as it won’t be classified as a large HMO so you won’t have to meet the more stringent rules. However, you should check with your local council as some smaller HMOs still require a license.
Even with a smaller property, you’re still required to make sure it’s safe and in good condition. This means that smoke detectors must be installed, electrical devices must be checked every five years and you’ll need to provide adequate cooking and washing facilities.
The property mustn’t be overcrowded (one single person or a couple per bedroom) and communal areas should be clean and in good repair. It’s a sensible precaution to provide a fire blanket and small fire extinguisher in the kitchen, as some students won’t have cooked their own meals before.
You should also bear in mind that this could be the first time your tenants have lived away from home or university halls. Very few will know how to use a lawnmower, read a metre or fix a blown fuse before they move in. They will be used to having their cleaning done weekly and toilet roll and light bulbs being provided. As this transition is a learning experience for them, you shouldn’t expect your property to be as well maintained compared to potential professional tenants. Regular maintenance work will be required to keep the accommodation at a good standard.
What sort of property should you buy and where?
Generally students prefer three or four bedroom homes with a large communal living room and kitchen. If you can find a three bedroom house that has an extra dining room or lounge, you can easily convert this into another bedroom to maximise your yields. It’s usually better to go for a property with a shower in the bathroom rather than a bath, as it will be easier to clean. While students may prefer a property with a garden, bear in mind that they won’t usually maintain it to the same standard as regular tenants or their neighbours. Low maintenance is the key – think decked areas rather than grass.
Spacious bedrooms are ideal for students because they will need their rooms for studying as well as sleeping. Different types of student will also have varying priorities. Post graduates will value a quiet working environment, but undergraduates often want larger communal areas for socialising.
As with many property purchases, location is the most important factor. Students will be prepared to live in less desirable areas compared to other tenants, but it is critical that the property is close to campus. Students also like to be near each other, so it’s worth researching which parts of the city have large student populations. Good public transport links are also a major selling point.
How to prepare your property for students
Students will normally require the property to be fully furnished, and when buying any furniture you should make sure everything is easy to clean, sturdy and comfortable. But furnishings don’t have to be luxurious – glass tables are generally a bad idea. Students may be less fussy when it comes to the condition of the carpets or wallpaper, but you should be prepared to spend more time and money on maintenance for a student property, as they tend to suffer much more wear and tear than with professional tenants.
It’s worth buying good quality furnishings, as this will set your property apart from the competition. In each bedroom you should ideally provide a double bed, wardrobe and a desk with an office chair. In the communal living room you could go for black leather sofas, as they are easier to clean and won’t be stained by frequent spilt drinks. In the kitchen, the usual white goods will also have to be supplied including a cooker, microwave, and washing machine. As there are multiple people sharing the property, it will need a large fridge freezer (or two) and plenty of cupboard space to store their food.
Other fixtures can make a difference too. Buying a tumble dryer is good idea because it will prevent any condensation mould caused by damp clothes spread around the house, which could make your property more difficult to sell-on, as well as potentially affecting the health of your tenants. Any structural weaknesses or long-term problems with the property may be seriously aggravated with student tenants, so before buying any property you should commission a RICs survey to check for potential problems and avoid a costly maintenance bill further down the line.
Take the time to prepare a house pack of information for the students, as well as a thorough inventory. This is useful as it’s an easy way to check if any damage has been done since the start of the year and let the students know their responsibilities as tenants. The house pack should contain details of recycling and bin collections, the instructions for how to use appliances and information on local amenities.
Finally, to encourage your tenants to keep the property tidy, you should also consider providing a vacuum and cleaning equipment such as mops, buckets, dustpans and bins – although this doesn’t guarantee that they’ll use them.
Choosing your tenants
Many students won’t have had any previous employment, so obtaining the normal references may not be possible. However, you may still be able to get a reference from a student’s university halls or sixth-form college. You should always make sure the students have guarantors, usually their parents, who will pay the rent and cover the cost of any damages should the student fail to pay. Guarantors are the reason students are the group of tenants least likely to fall into arrears.
Finally, timing is everything. You must make sure the property is ready before August or September, when your students will look to move in, and you will need to proactively advertise for the next academic year well ahead of time – usually in the January/February period.
Are there any disadvantages to be wary of?
The most serious issue with letting to students is that they tend to do more damage to your property than regular tenants. While a lot of the horror stories are exaggerated, you shouldn’t expect the property to stay in immaculate condition.
Another problem you may face is that a house full of students could be noisy which can sometimes lead to complaints from neighbours. But, if you buy a home in an area with lots of student buy-to-lets, this should be less of an issue.
It’s also worth remembering that occasionally students do drop out. Therefore, it’s a good idea to rent out your property as a joint tenancy, so the other students living there will be responsible for finding a new tenant. The students will often prefer this arrangement anyway, as they have more say over who moves in with them. While students do often take out 12 month contracts, you may still have to factor in a void period over the summer months.
However, many landlords find that the advantages of renting to students far outweigh the concerns. Some of the best yields for any property investments come from houses in multiple occupation (HMOs), and these houses can create double figure gross yields. The National Landlords Association reported that student buy-to-lets had an average annual return on capital of 6.7% in 2013 compared with 6.1% for the average rental property. It’s safe to presume these yields will improve in future with increasing demand from students.
Another advantage over choosing professional tenants is that students can be a lot less hassle. Typically, they aren’t as fussy in selecting their accommodation and won’t be as bothered by outdated kitchens or colourful bathrooms. They are also a lot less demanding of their landlords when there are minor problems with the property.
Overall, letting to students can be a fun, rewarding and highly profitable venture which should be worth considering for any potential landlords.
Article Courtesy of: Richard Sexton, Business development director of e.surv chartered surveyors.