The question for many parents of students looking to go to university this year or other property investors or landlords is should I join the ranks of student landlords?
Growing student letting market
There is no doubt that the student letting market continues to buck the trend in other areas of the economy. The resulting down turn has resulted in record numbers of students applying to enter higher education this year. The latest figures
show that application for degree course are up by 57,000 on last year as the economic downturn results in many students putting off work or ‘upskilling’ in an attempt to avoid the dole cue.
According to Knight Frank the UK student population has grown consistently over the last 10 years. Total student numbers have grown from 1.8 million in 1997 to 2.5 million in 2007. Savills expect this to hit 3 million full and part time students by 2014.
Growth has been driven in the main by domestic UK undergraduate demand. However, there is a trend to rising numbers of foreign student, with participation of overseas students at UK universities rising 67% over the past decade. Knight Frank research shows that in 1997 they accounted for 11% (international students) and 21% (postgraduates) of all students; by 2007 these figures had increased to 15% and 24% respectively. Both international students and postgraduates are more likely to opt for purpose built private student housing rather than shared houses. Foreign student numbers are expected to grow from 15% of all students in 2008 to 21% by 2018.
Knight Frank in their Report
produced this year estimated that London alone requires an additional 100,000 student bedspaces.
Student lettings niche letting market
Letting to students is a very niche part of the private lettings market requiring particular skills and an approach. It’s more complex and potentially involves the landlord complying with a greater deal of regulation than a standard buy-to-let. This is because many student lets will be classed as a house in multiple occupation (HMO). Landlords letting certain types of HMOs are now required to be licensed by their local authority. In order to obtain an HMO licence
landlords will have to meet certain fire standards and accommodation standards
that can be expensive to comply with. For example this can often involve having a newly installed fire alarm system and fire escape costing tens of thousands and also potentially taking value of the property because of it would then be no longer attractive to the owner occupier market.
Therefore for many first time landlords they should avoid investing in a property that is a potential HMO. The easiest way around this is to ensure that they only let their property to 4 or less student tenants as a rental property can only be classified as a HMO if let to 5 or more tenants. In addition, student lets require a greater amount of supervision and management input. This is because student properties have a greater turnover of tenants than many buy-to-let properties occupied by professional tenants. In addition many student lets will be required to be furnished. The level of furnishing is often specified by the university and landlords will need to comply with standards set out by the student accommodation office in order to be featured on the universities accommodation list circulated to many students looking for accommodation.
However students can make good tenants and here’s why:
1. A student landlord can fit more student tenants into a property. A 3 bed house will frequently accommodate 4 sharers – and that’s without letting the cupboard! This is more intensive than a let to a single tenant or even a house of professional sharers which can have a potential benefit on the investment yields.
2. Student tenants aren’t quite as fussy. Students particularly undergraduates have tended not to be as fussy as professional tenants. These type of tenats are more prepared to put up with slightly outdated kitchens and colourful bathroom suites than design conscious professional tenants. However, landlords shouldn’t be complacent; with the advent of more and more private halls standards are rising and mature and foreign students often demand professional levels of accommodation.
3. Student tenants sometime pay rent in advance. Some student tenants or more accurately their parents will often pay upfront for each semester or term. This is handy for a landlord as they have the rent in advance with which to pay any mortgage or other costs.
4. Student tenants are bright. This in theory makes dealing with them and sorting out problems easier. Catherine Bancroft-Rimmer, author of The Landlord’s Guide to Student Letting comments “You do get exceptions,” “but once you’ve explained why you need them to do something they are usually quite willing to go along with it.” From my experience there is nothing worse than trying to resolve a problem with a thick tenant. The phrase “like pulling teeth” comes to mind.
Student rental accommodation supply
There is no doubt that in many areas supply of rental accommodation by student landlords has failed to keep up with demand. This is especially true in London where a recent report by Knight Frank
highlighted a shortfall of 100,000 bedspaces in London alone. However, like many aspects of buy-to-let investment the fundamentals of any market are essentially local.
Therefore a prospective student landlord should ensure that they do their own local research by talking to local rental agents and University Accommodation Offices before factoring in their expected rents to their investment calculations
The competition amongst student landlords renting to students in some areas is a very strong. Some areas are already oversupplied according to Simon Thompson Director of Accommodation for Students.
"Leeds is quite overpopulated with student accommodation, as are the Fallowfield and Withington areas of Manchester."
Universities and increasingly private developers are constructing purpose built halls of residences. These aim for the top end of the market but none the less it is worth a landlord talking to the local planners to find out what is in the pipeline.
Student rent levels
The strong demand for student lettings and the shortage of supply has resulted in rents growing 10% in London where the shortage is particularly acute as London is the premiere centre for student accommodation in Europe with over 40 universities. In the rest of the UK rent level growth was less strong growing by only 8% but still outpacing the rest of the residential investment market where rents actually fell by almost 2 % over the last year according to the Rentindex
The latest figures on student rents released by accommodationforstudents.com, the UK’s No 1 student accommodation website, reveal that the average UK weekly student rent continues to rise. At £62.40, their figure is up 1.5% on last year and 19% on the comparable figure five years ago. AFS figures are based on rents from over 51,000 properties across 75 cities in the UK and includes figures from purpose built student accommodation and private landlords.
The ideal type of property for a student landlord
Student tenants generally prefer to go into Halls for the first year after which they then look for accommodation in groups of 4 or 5. Our research shows that different student groups have varying accommodation requirements. Post graduates for instance frequently prioritise a peaceful working environment and their demands are very similar to that of professional renters. Undergraduates are more likely to request accommodation located close to entertainment facilities and town centres and are more willing to live in larger shared properties.
Location is often a key factor. Students like to be near each other. Chris Horne Editor of expert landlord website Property Hawk says:
“If you can find out where the ‘cool’ bars and places to hang out are; then a property close by will definitely have a marketing advantage. Essential is that your property has good access by public transport to the University campuses as well as the night life and basic shops and services. Not all students have cars!”
A three bedroom property is probably ideal. This is because with a little bit of work, it should be possible to convert one of the ground floor rooms to an additional bedroom thereby allowing you as the landlord to accommodate 4 students. If you provide accommodation for 5 or more students, then you will very likely have to obtain a licence for your property as a House In Multiple Occupation (HMO). This in itself is not a disaster in that it will probably only cost a couple of hundred pounds from the local authority. However, what could be more difficult is that in order to obtain the licence the Local Authority may insist on certain minimum standards in the property. Examples of this are sinks in every bedroom along with other expensive fire safety measures. These works will not only be costly but potentially they will detract from the attraction of your property to the owner occupation market when you come to sell. To avoid this most student landlords are best advised at looking to keep the maximum number of student renters to 4. The exception to this might be where a landlord was looking at making it into a more involved commercial undertaking in which case buying an already licensed HMO would probably be cheaper and make more sense.
Victorian terraced properties often provide ideal accommodation for a student landlord because of the generous room sizes. Large spacious rooms are particularly appealing to students as these are often more than just a place to sleep. In theory they will be places of study and also their private space to retreat to when all the partying and communal living gets too much! Landlords should therefore look for properties with 3 generous double rooms and one living room that can be converted to this.
Insuring your student rental property
Insurance is also an issue. Finding the right landlord insurance is essential as not all insurance companies are keen on student tenants and they may impose higher excesses or charge higher premiums where students are involved. It is absolutely essential to ensure that a landlord insurance broker is fully aware of the position if you let to students. This is because many insurers consider that the type of tenant to be a “material fact”. This means that if there is a claim and you have not disclosed this, they can quite legitimately seek to repudiate a claim.
Celebrity Student landlords
If you do decide to become a student landlord you will be in good company. There have been several celebrities who have started their business careers letting to students. One of the highest profile student landlords is Craig Philips
the first winner of Big Brother and now a media personality who continues to build and run a portfolio of student rental properties.
If you are still interested in becoming a student landlord then you should read some of Terry Samuel’s invaluable tips on letting to student tenants. He has been letting to students for almost a decade and his tips are invaluable for any potential student landlord.
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