It’s the time of year when the universities are starting a new term and thousands of young people are beginning higher education. Being a student landlord can be an attractive proposition especially in an area with a high student population which has the potential for strong demand and high rental yields
The potential returns for renting to students are good. This is for several reasons. Landlords receive returns on their buy to let investments in two ways. Income from rent AND from the capital appreciation of the underlying asset value of the property.
Renting to students can potentially generate a much higher yield than letting a property to a single tenant. The current average according to Paragon is just over 6% nationally although there are significant variations across the country. Student rentals have the potential to significantly out perform this and multi lets for professional tenants.
Also, students are not as fussy. This means that they are prepared to live in areas not suitable for professional tenants and where capital values of properties are much lower. This potentially generates a much higher rental yield for landlords.
It is possible to let out more rooms in a student house generally thereby increasing the potential rent. For instance many student landlords who let a 3 bed house will let the lounge as a bedroom as well as increasing potential rent levels by 25%.
Students can make good tenants and here’s why:
1. You can fit more of them into a house. A 3 bed house will frequently accommodate 4 people.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 yields.
2. Students aren’t quite as fussy. Students particularly undergraduates have tended not to be as fussy as professional tenants. They are more prepared to put up with slightly out-dated 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 accommodation standards are rising.
3. Rent in advance. Some 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.
Students 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.
What are the pitfalls to renting to students?
There are obviously some pitfalls of renting to students and it is as well to be aware of these before a landlord seriously considers investing.
Competition – renting to students in some areas is a very competitive market. Some areas are already oversupplied according to Simon Thompson Director of Accommodation for Students.
Damage – some of the nightmare stories of the young ones may be exaggerated about the damage caused by wild student parties however, it is a reality that renting to young people away from parental control for the first time has its risks. One way of avoiding the risk of bearing the costs of damage is to ensure the students have a guarantor.
The other aspect about renting to students is that their period of occupation is generally only for the academic year which is only 9 months. The academic year finishes at the end of May and many students will go away for the summer and decide to rent somewhere else on return. Therefore a landlord can only count on rent for 9 months of the year. It may be that student tenants decide to stay for several years. In this case they will continue to pay rent during the Summer break in order to retain the property. Sometimes a landlord will negotiate a reduced rent during the Summer in order to retain the existing tenants. The upshot is that a landlord needs to factor in a void period into their investment calculation.