Student buy-to-let 2010
With the A level results out last week and record numbers of students going to university, many parents are considering becoming a student landlord for the first time.
For many parents it makes perfect financial senses to be buying an investment for their student off spring; rather than shelling out ‘dead’ money on rent over the 3 or 4 year period. A recent survey by Zoopla, the property search website, has found that buying a property is a better option than renting in about three-quarters of the top 50 locations around the country. Its Rent vs Buy Index compares current asking prices with the average rents for two-bedroom flats based on an interest-only mortgage at 5 per cent interest. Birmingham, Cambridge and Nottingham top the table of university towns where it is better value to buy than rent.
The positive news for parents looking to join the ranks of student landlords is that the threat by the previous government to require all properties with 3 or more unrelated tenants to require planning permission has been scrapped.
The good thing about being a student landlord is that you will generally get greater amounts of rent by renting out each room separately than if you let a property as a single entity to a single tenant. This ups the rental yield on your investment property.
Research by Savills shows that Durham and Birmingham have the highest gross yields at 7.1 per cent and 6.8 per cent respectively.
Liam Bailey, head of residential research at Knight Frank, says demand for student lets continues to grow in the north of England.
“Student demand has emerged as the key driver of the private rented sector in the three key northern cities (Sheffield, Manchester and Leeds),” he says. “Developments close to the cities’ university districts are experiencing the strongest demand.”
Most of the pricier university towns have lower gross yields – 4.1 per cent for Bristol and 4.3 per cent for Bath – but buyers are advised to consider the greater potential for capital growth.
Leasehold PM trap
Those landlords looking at purchasing a leasehold property such as one of the plethora of new apartments that have gone up in the last few years should be wary of the property management trap. Some newbie landlords when they do their initial financial assessment look at the relatively high gross rents being achieved with some of the modern apartments. However, they fail to factor in the service charges that many of these properties attract. As I’ve recently discovered these management costs can be substantial and more worryingly they appear to be increasing faster than rents resulting in a rental profits squeeze for landlords.
Student rents on the rise
The good news for anybody considering becoming a student landlord is that student rents are on the rise as student numbers continue to rise quicker than new student accommodation comes on stream.
The latest research from accommodationforstudents shows that the average student rent has risen by 4.3% over the last year. This is faster than other assured shorthold rents which are up by only 2% in the last year according to the Rentindex.
Over the last year the average student rent has risen from £62.61 per week to £65.30.
The most expensive rents are unsurprisingly in London with average rents topping £100 per week. Rents in the south east are highest with 8 out of 10 of the most expensive locations being found here. Guildford, Uxbridge, Cambridge, Middlesex, Egham and Brighton all have average rents of over £80 per week
At the opposite end of the spectrum the best value locations for student rental properties are: Middlesbrough, Stoke-on-Trent and Stockton with average weekly rents of £41.47, £42.65 and £44.71 respectively.
Examples of weekly rents in some traditional English redbrick universities are: Liverpool (£55.49), Birmingham (£57.30), Manchester (£60.12), and Sheffield (£60.14) are still below the average UK weekly student rent of £65.30.
Ideal student accommodation
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. 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.
Cheapest places to buy student accommodation
Many estate agents are reporting parents taking advantage of recent falls in house prices in university towns to pick up a student buy-to-let. New flats in university cities Leeds, Leicester and Birmingham have had particular strong interest as these cities have seen some of the largest price falls over the last two years. Some of the apartments have fallen by as much as 40% over this time.
Research by estate agents Savills shows that the university towns with the lowest average prices for apartments are Leicester, Lancaster and Loughborough. Terraced houses are cheapest in Durham, Birmingham and Nottingham. The university cities of Oxford, Bristol and Cambridge are the most expensive areas for buying.
When considering whether to buy a new apartment or a house to rent out; the main considerations are that if a landlord buys an apartment the management company will take care of the repair and cleansing of the communal areas. If a house is purchased, then the landlord is responsible for the ongoing maintenance of the property including aspects like roof repairs, gardening and external decoration. The upside of a freehold property such as a house is that the landlord does not have to pay ground rent or the hefty service charge that often comes with new leasehold properties.
Lucian Cook of Savills says it is important for parents to compare the price of terraced houses with flats before considering a purchase. “In Birmingham, the cost of buying a terraced house is actually 30 per cent cheaper than buying a flat,” he says.
However, Cook says that when weighing up a decision, parents should consider the availability of university halls of residence. For example, about 73 per cent of Cambridge students live in halls for the duration of their time at university, according to Savills, and it is a similar situation in Warwick and Lancaster. However, at universities such as Birmingham, Sheffield, Southampton, Bristol, Sussex, Newcastle-upon-Tyne, Leeds, Bath and Nottingham fewer than 20 per cent of students live in halls. “In these locations, parents are much more likely to consider buying a flat for their children’s university years,” says Cook.
Marketing your student rental
There are a number of marketing websites that allow a student landlords to market their properties directly to student renters. One of the longest standing is accommodation for students.
For £12 a month a landlord can advertise their property to their database and allow tenants to contact the landlord directly.
There are also several websites that allow landlords to advertise their properties for free. U-room has recently set up providing a free marketing service for landlord and there is also a student version of the very popular spareroom.
Make sure you get a guarantor
One tip from a very long standing student landlord is that you should get a guarantor when letting to students. This is because student tenants often have no or poor credit ratings and a footloose lifestyle that can make it difficult for a landlord to pin them down for any outstanding debts.
To find out more about our guarantor forms including how to download them for FREE have a look at this recent article.
Insuring your student buy-to-let
A landlord letting a property to student tenants for the first time needs specialist landlord insurance. Finding suitable landlords insurance is essential as not all insurance companies are keen on student tenants and may impose higher excesses or higher premiums. It is absolutely essential to ensure that the properties insurer is fully aware of the position if you let to students. This is because many buy-to-let 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 fact; they can quite legitimately seek to repudiate a claim.
Got a view on student lets? Post your comments here.
Interested to see your comments re student lets.
Our experience has been very good; we have had plenty of advice from the local authority and decided early on that we would provide really good accommodation. The university held an event for landlords with plenty of information and guidance on HMO etc; well worth attending. We pay nothing for advertising as the university advertises for us; we have to meet their standards to be accepted on the lists of approved accommodation, but this was all within standards we were meeting anyway. We have gone for HMO certification made sure that our accommodation would attract good tenants.
We advertised in October for the following academic year and had about eight groups of students contact us. The first group who saw it booked it and all contracts were signed etc before the start of the Christmas holidays.
We would say: always do the best for the students and then you can select the quality of tenants. We have a good relationship with the University, Local Authority, police (!), and neighbours.