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Student lets are a popular business model for more experienced landlords. The UK is blessed with a world-leading higher education system and young people from overseas are queuing up to go to a UK university.
Student tenants offer a lot of advantages to landlords, but there are also some disadvantages, as we are about to find out.
The Pros
Here are some great reasons to take a leap into the student rental sector!
Students Are Not Fussy
This is perhaps a generalisation, but the majority of students won’t care about brown carpets and old-fashioned furniture.
As long as the wi-fi works, there is some communal space, and there are shops and public transport within reach, they will be happy. However, it will be easier to attract students if you invest in the right properties in popular areas, so do bear this in mind.
Older properties with larger rooms and more than one bathroom/toilet make the best student properties. If you can convert a second reception room into a bedroom, it means more profit for you.
But remember that older properties tend to be less energy efficient and come with a selection of expensive problems, such as damp, electrical issues, and worse. Thanks to the Homes (Fitness for Human Habitation) Act 2018, landlords can no longer allow tenants to live in squalor, and that includes students!
A Steady Supply of Tenants
There were 2.3 million students in higher education last year. Some of them live at home, but the majority rent accommodation when they go to university. It’s common for first-year students to live in halls of residence, but thereafter, many of them move into the private sector after their first year, so they can share accommodation with friends.
As long as you invest in a property in a popular student catchment area, you should have no problems finding student tenants. Since the student population has been growing steadily over the last ten years, that situation is unlikely to change any time soon.
Excellent Rental Yields
Student rental yields are still better than average. Data published this year has revealed that the top buy to let hot-spots are university cities such as Nottingham and Manchester.
Nottingham has a student population topping 37,000 and one in eight residents are students. The average rental yield for Nottingham landlords is 11.99%. Compare this to London where you will be lucky to get 5% thanks to poor capital growth and high property prices.
No Long-Term Contracts
Students rarely want to rent a room or property for longer than 12 months. This is handy if a tenant isn’t reliable or cooperative, as you won’t be tied into a long tenancy with them.
Low Voids
Voids are a problem for buy to let landlords. When a tenant vacates a property and you can’t find another one fast, there is no rental income. Unfortunately, your costs don’t disappear, so you could end up out of pocket.
The academic year typically runs from October to June/July. However, most students are happy to sign a 12-month lease, so they have somewhere to store their belongings over the summer before the new term starts. This removes the problem of void periods, although it might be wise to factor in one month a year to carry out a program of repairs and renovations.
Rent Upfront
It is common for students to pay their rent in one big chunk up front, in order to secure their chosen property. From a cash flow perspective, this is great news!
The Cons
Here are a few reasons why you should proceed with caution…
Furnished Accommodation
Remember that you will need to offer furnished accommodation if you advertise to students. Most students pitch up to university with clothing, computers and gadgets, and not much else. They will require a bed and bedroom furniture, and in a shared house, a sofa, white goods, and a few bits and pieces.
Make sure you budget for the cost of furnishing your properties. In most cases, a few second-hand items will do the trick, but if you prefer to buy new, head over to Ikea and flex some plastic.
More Wear and Tear
Make no mistake, student properties do suffer more wear and tear. This doesn’t mean that all students are happy to live in squalor, but you can expect sub-standard kitchen hygiene and breakages, as these are quite common. It is also sensible to budget for new mattresses once a year.
Competition from Purpose-Built Student Rental Accommodation
The Purpose-Built Student Accommodation (PBSA) market was worth £3.9 billion in 2017 and it’s growing year on year. Major portfolios have spotted the potential of buy to rent in the student sector and are investing heavily. This is having an effect on traditional student landlords, as competition for students increases in popular towns and cities.
To counter this effect, do some research before you invest. Check market demand in your target area and make sure you are not up against aggressively priced housing schemes marketed by developers with deep pockets.
Guarantors Needed
Most students have no credit rating. Therefore, you will need to ask them to provide a guarantor. This can be a parent or guardian. A guarantor is essential. If the student doesn’t pay their rent or causes damage not covered by the bond, you can chase the guarantor for the money.
Anti-social Behaviour Problems
Plenty of students love to party. Unfortunately, raucous parties in shared houses located in quiet residential streets can cause a lot of upset. Many universities provide welcome packs that remind students to be considerate of their neighbours, but after a few drinks, it is all too easy for a small get-together to escalate into an bigger party. Even groups of students heading home after a night out can cause problems due to shouting and other antisocial behaviours.
Bristol University now has a fines system in place whereby repeat offenders can be fined up to £250 and must attend anti-social behaviour impact awareness classes.
As a landlord, you are responsible if your student tenants are making the neighbours’ lives a misery. If you don’t deal with the problem, be aware that the council may step in.
In summary, it isn’t all plain sailing, but student lets are one of the more profitable areas of buy to let. As always, we advise you to do your own research, check your figures, and make sure your business plan holds up before you give it a go.
