Renting out a property can be a good investment both with gaining from monthly income and, hopefully, capital appreciation on the property over time. Indeed, for those in a position to LET out a property, now is a good time with the average rental yield in the UK currently being around 6%, an improved figure than that available through saving rates at the bank.
There are several different approaches to letting out a property with various target markets such as families, professional and council tenants. Additionally, there is the option of student lets which is proving quite popular for some investors. However, renting to students is a completely different market even for experienced landlords.
If you are considering becoming a student landlord, it is important to weigh the advantages against the pitfalls. Below are some of both:
Advantages
Higher yields – renting to students provides the opportunity to have more tenants in a house by letting out more rooms than a conventional let may allow. Letting a 3 bedroom home to students could stretch the accommodation to house 4 sharers by using a living room or dining room as an extra bedroom. This extra tenant can increase the rental income by a potential 25% and as a result, the rental yield increases. Additionally, many student areas are located in less expensive parts of town meaning the purchase price is relatively competitive, further increasing the potential for achieving higher than average yields.
Increasing demand – the vast majority of students will rent during their university years and with the employment market demanding degree level education and more people attending university than ever, the demand for rental property in university locations is constant and increasing.
Less demanding tenants – students are, on the whole, much less demanding than other tenant types and will be happy with a less modern kitchen, bathroom, décor and carpets. Although this doesn’t mean students will just accept any type of condition, it does allow student landlords some flexibility on renovation and maintenance expenditure.
Guarantors or rent in advance – although students aren’t earning a salary, in a strange way this may be an advantage. Often, rent is paid in advance, (great for cash flow) or students will have guarantors, meaning if the tenants fall into arrears, a second party is legally obligated to cover the rent. This may add more security than a professional couple who could be at risk of losing their jobs mid tenancy.
Often uninhabited for months – it is common for students to actually only inhabit their rental property for around 9 months a year. If you are able to negotiate a 12 month contract, you will benefit approximately 3 months rent with no wear on the property. If agreeing 12 months full rent is proving difficult, you may be able negotiate to achieve a reduced rent for the vacant summer periods.
Pitfalls
Damage – students are often away from ‘home’ for the first time when at university and this new found freedom can have a detrimental effect to furnishings and the condition of a property. This is the most common downside to student letting and an attempt to counteract too much loss as a landlord is ensuring a full inventory and check in is carried out at the start of the tenancy and a check out at the end.
Neighbour complaints – renowned for parties, nocturnal activity and generally a more (understandably) immature approach to life, a common student landlord problem is neighbourly complaints. Dealing with anti social behaviour is worth consideration before proceeding with student tenants if the property to be let is in a more residential area. However, with more student lettings being in predominately student areas, it is more common for neighbours to also be students, limiting this factor.
Vacant periods – the university academic year runs from September to May, just 9 months. Depending on the structure of the tenancy agreement, some landlords find that rental income only lasts for this period, leaving 3 months void period. There are summer students available and in some cases students remain in the house for another year but this void is something to be aware of when estimating figures.
Licensing regulations – student landlords with three storey property or 5 or more tenants must obtain an HMO licence. The cost of the licence varies between councils from £200- £1500. Additionally, satisfying the licence criteria may involve some expenditure with fire doors, strict gas and electrical regulations etc. being enforced.
Read Every Landlord’s Guide to Finding Great Tenants by Janet Portman Attorney in getting the best tenant for your property. An ultra-complete guidebook that every residential landlord should have to find and select quality tenants!
