Student accommodation: Higher rental yields & guaranteed income stream
We spoke to Nick Emms at Accommodation for Students to find out why renting out your property to students makes good business sense. With high rental yields, steady income stream and less chance of students defaulting on their rent payments (beacuse of a guarantor) it could be time to think about student lets. He gave us a comprehensive round-up of the areas affecting landlords when renting to students.
In England and Wales, the majority of student landlords letting shared housing will opt for a joint tenancy agreement, which means that each student in occupation is responsible for the rent. That means in the event there is a turnover of tenants during the tenancy period the students are effectively responsible for sourcing an alternative. Traditionally, most students prefer a fixed term tenancy agreement of between 44 and 52 weeks, which fits in with their academic cycle. However, this is not possible in Scotland under the new guidelines and this will present some challenges for Scottish landlords, particularly in regard to securing tenants for the next academic year.
It is very common for student landlords, agents and private hall operators to request a rent guarantor. Most students do not have an established credit history and references from previous landlords. In addition, their income is likely to be relatively limited to student loans and money from part-time employment. As a result, a guarantor is required to effectively take on some or all of the commitments the student is making in the tenancy agreement. UK Guarantor acts for students who cannot provide a suitable guarantor. This will generally be students who are from overseas or whose family does not meet the often stringent requirements.
Students should be regarded as attractive tenants. Our research indicates that students rarely get into rental arrears and in the event that this arrears turns into default, most student landlords can rely on a guarantor to make these payments. Most experienced student landlords will know that a late payment will generally relate to the student receiving their funding late, for example, and work with them to ensure a late payment does not turn into default.
This is a relatively safe and secure market. This is evidenced by the amount of institutional investment into student accommodation over the last decade, where large corporate investors have made billions of pounds of investment into purpose built student accommodation in a bid to secure the steady returns the student accommodation market offers. At landlord level the ability to put in place a guarantor for the tenancy reduces individual risk and a well-located student property should benefit from a consistent stream of student tenants.
Traditionally most student landlords operate on a fixed term tenancy agreement. Typically rents will be reviewed on an annual basis as the fixed term tenancy comes to an end. The average rent for a shared house is £88.61 per week, an increase of £1.85 a week from 2017. This approach will need to change in Scotland under the new tenancy laws.
Renting to students has a number of advantages – for example, a well-managed student HMO should deliver a better yield than other uses of the property. However, such multiple occupancy can create more maintenance issues, given that the property is used in a more intensive manner. Regular inspections are important to stay on top of this and address issues as they arise.
An important trend over the past five years has been the rise in bills-inclusive student accommodation. In short, most students do not want the hassle of organising and paying bills, therefore landlords who offer bills-inclusive rents will have an advantage over those who do not. Typically, landlords offering bills-inclusive rent will add £9 per week per room to the cost of renting, making the average rent £93 per week.
Pros of renting to students
There are many, from the higher rental yields, through to the steady flow of potential new tenants. The modern student is generally diligent and hardworking, making for a good quality tenant. Furthermore, the ability to have a guarantor for the rent, whether that is a family member or a company removes much of the risk involved.
There are a few simple guidelines when thinking about renting to students. Location is critical, so either close to the university or in an area with suitable transport links with a high density of students in important. The next most important consideration is high quality broadband and the option of bills-inclusive rent. If the property is well maintained with modern décor, you will stand a good chance of success.
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