Letting to Students
Should I become a student landlord?
To be a good student landlord you should like dealing with young people. This isn’t always easy. Students aren’t always the most organized of tenants. Letting to students can take considerably more management time then letting to say a professional couple. Landlords should factor in additional management time when calculating their investment returns.
Why students make good tenants
There are definite attractions to letting to students. They can make great tenants and here’s why:
- Landlords can ‘squeeze’ more tenants into a property. Student tenants are generally more tolerant of living communally in a way that professional sharers aren’t.
- Landlords can buy cheaper property in less attractive areas. Property with a lower capital value means higher rental yields, having a positive impact on a landlord’s investment returns.
- Historically, landlords have got away with letting property to students in pretty poor decorative order saving on expensive refurbishment. This is changing though. An increasing supply of purpose built student accommodation means that students have more choice than ever before. Student loans mean that many students have more money to spend on their accommodation (this is particularly the case for foreign students). These students are prepared to pay for and demand higher standards than before and poor quality student accommodation can lead to bad and unreliable student tenants. Beware, a bottom of the barrel rental property attracts the bottom of the barrel tenants.
- Student tenants sometimes pay rent in advance of a term. This helps with their budgeting and stops parents worrying that ‘junior’ will run out of money and be evicted. Rent upfront is always good.
- In theory, student tenants are brighter than the average tenant. Resolving management issues should be easier, but don’t always bank on it. Wetness behind their ears can sometimes leave them lacking a little common sense.
- Buying property to let out to students can be a great way of getting into an up and coming area. This has been particularly true in London. Can you imagine if you brought a whole load of student houses in places like Shoreditch or Hackney 20 years ago.
Down side of letting to students
Like anything, there is a downside to letting to students:
- Students don’t require accommodation for the full year. Universities work on the basis of Terms and Semesters. Students will return to the parental home for large periods of time, particularly during breaks in the academic year. During the summer holidays a student property could be left empty for several months. Landlords need to factor this into their rental yields and investment returns. In areas of high student demand it is possible to negotiate for the students to pay half or even full rent during the summer holidays to ensure that they secure or keep their student accommodation.
- Students are foot-loose and fancy-free. They often only stay in a rental property for a single year. Student houses will form and reform often during the course of the tenancy. Student tenants move in and out, without giving notice making it difficult to keep track of who is in occupation. This can give rise to all kinds of sub-letting issues.
- Student tenants are renown for leaving their junk at a rental property. This can be a nightmare to get rid off. Landlord need to make sure that at tenant check out all their rubbish has been taken. Getting rid of rubbish is a time consuming and expensive business for landlords if a basement is stacked full of traffic cones, unwanted study notes and a full sized replica camel.
- Student tenants often see it as a bit of a game to bate their landlord. Landlords are seen as the ‘legitimate class enemy’ by the angry newly politicised adult (power to the people!). Some student tenants will go to extraordinary lengths to ‘get one over’ on their landlord, whether avoiding paying rent, removing items from the rental property or sabotaging things for fun. Landlords need to endear themselves to the students to avoid a tiresome and costly tenancy.
- Student tenants because of their young age will have a limited, if non existant credit history. This means that traditional methods of credit checking and referencing your prospective tenants will not provide landlords with any meaningful results. It advisable for landlords to get a tenant guarantor for student tenants. A guarantor will reduce the risk of a student tenant doing a flit from a rental property without paying the rent. It also means that tenants are less like to act irresponsibly and leave the rental property damaged. If they do, a landlord will have the parents / guarantor to pick up the tab for the damages.
Student lettings is a niche market
Student lets is a niche letting market, with many landlords letting solely to students, including some well known celebrity landlords. Many of our towns and cities now have ‘student ghettos’ – areas where large numbers of student households live ‘cheek by jowl’. Families have been driven out by this ‘student ghettoisation’ and councils are increasingly responding by imposing Article 4 Directives in these areas to try and stem the colonisation.
The designation of these Article 4 Directives means that landlords are then required to obtain planning permission to turn a family house (use class C3) into a student let known as a small house which is in multiple occupation (use class C4). These small Houses in Multiple Occupation are residential properties with between 3–6 people sharing facilities such as a kitchen or bathroom.
The ideal type of property for letting to students
A student landlord needs to select carefully the area in which they buy. Students generally like to be near other students and they also like easy walking access to their university (not all students have cars). More important student tenants want easy access to a good range of local facilities, particularly good bars, cafes and convenience shops. Undergraduates if they aren’t living in student halls are happy to share with other students in large houses. However, whilst there are economies of scale of buying a large property to rent out in terms of generating higher rental yields.
There is an issue that once you let to 5 or more students because you will have a property; which is probably classed as House in Multiple Occupation (HMO) . This immediately means that you will require a licence from the local authority, which will cost your several hundreds if not over a thousand pounds (they do vary widely depending on the local authority). More importantly, to obtain a licence you will have to satisfy the Local Authority on matters such as fire safety in a rental property. It can be incredibly expensive for a landlord to meet the required standards and adapt a family home to meet the standards specified by the local authority on advice received from the fire officer. As well as having to satisfy the local authority; if a student landlord wishes to market their property through the university they will also have to meet the student accommodation standards laid out by the university. These prescriptive standards can run to over 50 pages of tick box requirements (always adviseable to contact your local university first to see what they are).
To avoid having to obtain a HMO licence then the easiest thing is to find a property that will only involve letting to 4 or less students. A 3 bed semi-detached or terraced property is often ideal. A student landlord will probably want a communal lounge & kitchen or landlords often get away with a large communal kitchen dining room. Having two toilets and more than one shower is always a bonus for anyone targeting communal living.
Tips on managing student properties
Managing student rental properties is generally more intensive than letting out unfurnished property to professional tenants. A higher turnover of tenants and the very nature of students and their student lifestyle can make the task more challenging. However, the extra hassle is usually rewarded by higher rental returns. A rental property let out on a room by room basis with afford a higher rent than a property rented as a whole.
The added costs involved will typically be off set by the added income, and if a landlord manages their student let properly, they should be successful:
Here are some helpful letting tips from an experienced student landlord.
- A thorough schedule of condition and property inventory is critical for a student let. There is a greater risk of damage and disputes over wear and tear of a property in a student property because of higher intensity of use. Have a look at our tips on preparing a property inventory.
- Student landlords should devise and issue a check-out leaflet pointing out the procedures and expectations at the end of the tenancy.
- The above should be used in conjunction with the tenant guarantor and the fact that it is adviseable to avoid the tenant deposit scheme by not taking a deposit at all. Instead take a £50 administration fee which covers the expense of drawing up a guarantor agreement that has to be created as a deed.
- Always insist on a tenant guarantor.This way you will ensure that you will get paid your rent and that at the end of the tenancy you are will get any damages paid for out of the tenants deposit (it would be very easy for your rental profits for the year to be used up in repair bills).
- I would always ensure regular inspections of a student rental property (probably every couple of months) to make sure that the rental property is being properly maintained and the correct tenants are still living their and that it is not being sublet. This is good practice with any rental property but is particularly important with student lets, where unmonitored behaviour can result in serious damage to a rental property by the end of the tenancy. Note, for many students this will be the first time they have lived independently. Sometimes early intervention and instruction can prevent serous damage to a rental property.
- Consider altering the tenancy agreement so that tenants are made responsible for ‘Tenantable Repairs’. These are small scale repairs like re-hanging the door, cupboards & wardrobes, replacing light bulbs and tightening screws in furniture. This shifts the annoying ‘day to day’ rental property maintenance issues to the tenant.
- Use a cleaner for communal areas and a gardener. This is something that is applicable for larger HMO property. If communal areas are not cleaned and gardens are left unkept a property can quickly become unsightly and unappealing.
- Take out specialist student letting insurance so that the rental property is fully covered.
- Market the rental property through the student accommodation list as well as other specialist student websites like ‘accommodation for students’. Getting the best marketing exposure for a student rental property will minimize the risk of a letting void.