25 Nov 2015
Julie Webster, Leasing Negotiator, explores the pros and cons of leasing property to students.
In an ever changing rental market, landlords may be looking to diversify their property portfolio into areas they may not have previously considered. With reliable tenancies, attractive yields, and an ever-increasing student population, many landlords have decided to invest in the student housing market.
University cities have seen increasing rental yields with Scottish cities in particular offering the potential for attractive returns for buy-to-let investors. Recent research from property website Zoopla reported that Edinburgh had the overall best average rental yield in the UK at 6.11%. Aberdeen closely followed with an average rental yield of 5.66%, Dundee 5.11% and Glasgow 5.07%.
Many landlords do not view students as good tenants but, in reality, students can be a reliable and remarkably hassle-free source of rental income. The majority pay their rent on time, look after the property, and are relatively undemanding. Landlords of good student properties have a strong and consistent market that remains predictable whatever is happening in the economy and the wider property market. Student tenancies are often arranged early with students generally starting to look any time from January for lets starting in the next academic year in August/September time. This offers good continuity for landlords, reduces void periods between tenants, and so increases rental yields.
Landlords should however be aware that there are a number of considerations to be taken into account if they are thinking of letting to students. The general wear and tear of student properties can be greater. As a result you are likely to experience increased maintenance costs at the end of a tenancy when compared with a traditional let. The increase in the value of student properties is typically slower than other property types. So, if capital growth is your main investment aim, letting to students may not be the best option for you. This does however depend on the market and area.
Choosing a suitable property is key when looking to attract good student tenants. Many students wish to live in larger groups, so it may be easier to let properties with three, four or even five bedrooms. These larger properties often produce higher rental yields. More than one bathroom or toilet is a plus. Popular areas are always close to the main university campus and it should also have good transport links into the city centre. The view and immediate surroundings aren't usually important and the best student properties from an investment perspective may be in places which aren’t viewed as prime residential areas.
Students generally won’t overlook properties due to them being on a busy road or being in close proximity to some wasteland, but they will reject them if they're difficult to get to from the city centre or the university. The upkeep and maintenance of a more modern or newly renovated property should be much easier than an older building which could require repairs more frequently.
Most students will seek properties which are fully furnished. Students tend not to be concerned about a house or flat having brand new sofas or an ultra-modern kitchen, however investing in good quality, functional furniture and fittings will most likely save money in the long run. Plain, modern paintwork, hard-wearing floor coverings and basic, sturdy furniture which can withstand the occasional excesses of student life is the way to go.
Understanding your legal obligations is vital when becoming a landlord. If you do let a property to three or more tenants and these tenants are from separate households but share a kitchen, bathroom or toilet, (which is likely if you are letting to students) you will need to comply with rules around Houses in Multiple Occupations (HMOs). HMOs are regulated more strictly than other property types. Local Authorities have the power to determine which property types must be licensed so local requirements should be fully understood and complied with.
Students will often be coming straight from their parents’ home and so will be unable to provide credit or employment references. This can be off-putting for many prospective landlords but additional security can be obtained by requesting that each student tenant provide a guarantor. Guarantors are generally parents or other relatives, who themselves would be credit checked. In the event that the tenants fail to pay their rent, the guarantors would become liable.
Whether you just want help with finding student tenants, or you’d prefer for someone else to manage the whole letting process for you, get advice from an expert in both lettings and residential sales, who can advise you on the best properties to purchase if you’re new to student lets.