I Vital Statistics

With the Buy-to-Let market seemingly over saturated, a steady and buoyant student buy-to-let market is one that still offers the potential of good returns.

There are multiple reasons as to why the student buy-to-let is a worthwhile investment. UCAS, the University applications agency, has seen a year-by-year increase in applications. The Increased student numbers are fuelling a rush to build.

It is a well-known fact that in today’s competitive market, universities are struggling financially, which is having knock-on effects. In addition to the increased numbers of students, massive student housing shortage and lack of investment in new housing initiatives offered by the universities, the benefits of private investment has never been better.

In some student cities throughout the UK, you can see the private developers building high-rise student apartment blocks as they have latched onto this investment opportunity. Just the other day, I was at Manchester Piccadilly station and out of nowhere, there was a modern, high-rise student apartment block that had sprung out of nowhere to obscure the usual landscape view of the city!

University town = students = £££!! 

Well, not necessarily. This book will provide an intensive look into letting out your property to students and by the end, you will feel much more confident in what type of student you want, which area and what kind of property will best fit.

The idea of this book is to assist you in your choices and to act as guide. You should keep in mind that there are roughly 200 institutions of higher educations in the UK; some of which are placed in cities where the number of students exceeds the number of local residents, and in other cases, institutions which have been discarded outright in this book due to various reasons e.g. not enough students (or projected number of students) to make the investment worthwhile or sustainable.

Students typically reduce costs by sharing and minimising personal expenditure. Consequently, student houses can improve higher than average yields by maximising the available space. On a less rosy scenario, one must also take into consideration the responsibilities of renting to students, such as higher maintenance; furnishing costs; increased wear and tear, when compared to a professional couple for example.

The location of the property will also be a deciding factor in your purchase; not just on a national level primarily chosen by you, but on a more local level which will be dictated by the campus location, access to local amenities, nearness to bus stops etc

All these issues will be detailed throughout the book, and at the end, you will be much more confident in buying the perfect property and reaping the benefits of student let property.

Chapter 3 - Finding the right property

Like any property investment, I always apply a rule of thumb, and here it is no different. Here, I call it the rule of 10.  It’s very simple to remember when looking at properties.  Simply calculate the annual rent and multiply it by 10 – this gives you the purchase price.  So if you see a 3 bed 2 reception roomed house and you know the room rate is £60 per week then the calculation is:

4 x £60 x 52 x 10 = £124,800.

So if you see the house advertised for £110,000 then go for it!  If its for £150,000 then forget it.  Speak to letting agents or look in the local press for typical rental values for the area that you are looking at.  This yield is also stated as a payback period – the length of time it would take to own the property if you re-invested all the income earned to replenish your savings.  You would calculate this like:

            1           . = Payback Period.           

Gross Yield/100

This equates to 10 years.  10% is a like-for-like comparison to a bank or building society rate.  So if your bank is offering 4% you know that you can earn 2.5 times as much from investing in property.  But this assumes that you have funded the whole property purchase out of your own funds.  Usually this is not the case.  When you borrow to finance the purchase the returns are significantly higher as highlighted in the previous chapter.

It’s surprisingly easy to manage a property outside your area once the property is set up right.  There are many areas that offer you a return of 10% or greater and student properties can do the same.

Sometimes for student rental, the AVERAGE gross yield per year is calculated as:

(42weeks x Room Rate) + (10weeks x (room rate/2)) x number of bedrooms)

Property purchase price

As you can see, the average has been calculated by charging half-rent during the summer period. This is whereby the landlord will charge 50% rent during the summer as to reserve the property for the start of the academic year, more commonly known as a retainer. During this agreed period, you are not to let your property to anyone else as this counts as rent. For more information review the chapter on legal issues.

The VarsityLets scheme offered by Bradford and Bingley as described earlier guarantees full rent for the year, and so in this situation, the yields are increased. How much in demand or desirable your property is will considerably have an effect on this average i.e. if my house has all the latest mod-cons, full speed internet access, large bedrooms, newly fitted bathroom and so on, then I would feel extremely confident in charging full rent 52X weeks of the year and can adjust profit and yield figures by +1 or 2%. If I have a squalid property with a hazard-prone shower unit and rusty old kitchen hobs, then expect it to be more desirable if I charged rent for term times only.

As an arbitrary example, we look at a 3-bedroom house[1] at a purchase price of £145,000 in Bristol - and we can see the differences. If the standard room rate is £52/week, then the figures come out as shown.

Where Average Yield 1 is the formula used above and Average Yield 2 is full 52 weeks rent for such a property.

In general, when looking through the university listings, the Yield & profit given are considered as a calculated minimum/average and should be weighted roughly + 1 or 2% if the landlord decides, and have the capability of charging full rent for 52 weeks as demonstrated above.

The example, for Bristol, shows that the average expected yield range is between 6.7% for a three-bedroomed house, but could be as high as 7.5% if 52X weeks full rent is charged. In this example, I personally, would choose not to invest in Bristol.

WHAT ABOUT CAPITAL APPRECIATION, I HEAR YOU SAY! 

Capital appreciation is the amount the property rises in value over time.  I never include the gains by capital appreciation in my calculation of yields because it is an unknown figure at the point you make the investment.  If there was any certainty of the capital appreciation of a property then the purchase price of the property would include this gain.  As there is a lot of uncertainty over capital appreciation because of the numerous variables involved it is very difficult to predict when house prices will rise.  And remember the gain is only realised when you sell the property and the difficult thing with any investment is knowing when to get out and sell.

I see capital appreciation as a bonus.  I focus on the investment as it stands.  If it makes money now it will almost certainly make you money in the future.  If the property prices crash – who cares!  You are still making money as the rent rises with inflation and the mortgage payment is still the same.  If property prices increase again – great!  You can realise that equity by remortgaging or by selling and buying further properties!  This way there is no downside risk and only upside potential.

Admittedly there is a lot of money to be made in capital appreciation speculation but capital appreciation speculation should be left to the professional property investors. They have the time to research the market and can stomach the loss if there is a property price crash.

What’s so good about Student properties?

Well, the good thing is the market will always be there! Secondly, if you play things right, you can achieve higher yields than if you were to let the house out as per normal. For example, if I were to let out my 3-bedroom terraced house to a couple with two kids in the area of Withington/Didsbury in Manchester then my average gross income would be say £433 per contract month. However, if I were to let it our to students, I could convert the bottom reception/lounge and rent it out as a house with four bedrooms. For an average rent of £50, this means that I would receive £866 per month – basically DOUBLE! This increased yield can be achieved with the commitment and correct attitude required to attract the right student for the right property.

WHAT TO LOOK FOR WHEN VIEWING A PROPERTY

Do not believe the myth that a property is only worth buying if you could see yourself living there.The fact is you aren’t going to live there so what is the point of asking yourself if you could live there?You should ask “would students live here?”

Matching the right property with your target group is of crucial importance. As commented on before, the image of three or four longhaired, undernourished and scraggy clothed students, willing to live in a shoebox for three years is a stereotype that has washed away with the last decade.

This does not mean that every student would like a penthouse suite with a Jacuzzi; nor does it mean that the trusted old formula of a 3-bedroom house with a standard sofa, kitchen table etc would not be adequate.

What is important is asking yourself how a potential student buy-to-let purchase can be made as competitive as possible within its local setting. For example, if you know that the latest student developments offered by the University will have full access to hi-speed or broadband Internet in every room, then you must provide at least the same.

The best way to find out the demand and suitability of property is to speak to both the university Students Union and the University Student Housing office. This way, I have found that from one perspective, you’ll get ideas through the student representation and from the other, a more commercially focused response and suggestions respectively.

When viewing a property check for:

If the property is in a reasonable condition then buy it.  If demand is good there should be no problem letting it out as long as the property is in reasonable condition.

Furnished or not?

The normal procedure for the student is to start searching for next year’s room within a few months of starting their course. In the majority of cases, the student devotes a significant portion of a good couple of weeks, maybe months, in finding that right house. In addition to factors such as location, price etc, a key factor in attracting the right student for your property is how you furnish your house.

So the answer to the furnished or not query is almost definitely, a big yes! A more appropriate question would be what are the necessary furnishings required to attract the right student? You must remember that for students, this will probably be their first time searching for a house or room to rent and they will take a tacit interest in the furnishings and fittings upon viewing a house. The key is not to overload the house with junk-shop furnishings and rusty, worn out cookers or freezers. The higher the quality of the property and its entities, the better chance you have of finding responsible students to look after your property.

Is the cooker safe and does it need replacing? What kind of settee can I get that will be reasonably priced but welcoming? What items does the student tenant expect to find in the house? Should I provide a television? These are some key questions that I have asked myself and as there is a requirement to furnish student houses, similar questions should be an integral part of the way you approach the student market. Some key furnishings related to student accommodation include:

Location

As the market swells with buy-to-let investors, you must choose the best area within your budget to ensure that the profitability of the location is worth spending your money, time and dedication. For example, in my humble opinion - and I am sure others would agree - there are very few spots on London that would generate enough yields to compensate for the huge initial investment for a student buy-to-let.

Just glancing at the yields calculated in the listings, the not-so profitable areas include Bristol, Cambridge, Liverpool and Oxford and so on due to the low yields. Like I said earlier, I see capital appreciation as a bonus. If it makes money now it will almost certainly make you money in the future. In areas like Liverpool, as buoyant as the student market is, the whole city is plagued with buy-to-lets. The fact that rent prices cannot keep up with increased house prices has meant that standstill or general reduction of rents is due to this saturation, producing relatively low yields. Despite this remark, if you can still pick up a bargain in a potential or student area, then go for it. If it means that with your purchase you can offer competitive rental rates and still make a profit, then it’s worth a look.

Contrastingly, the University of Brighton and University of Bournemouth have a lack of student housing available and the universities encourages Landlords to register with the university in order to let out to students. The general high house prices will deter those that cannot afford the huge initial outlay, but there are still some good returns on the right property, if it is within your reach.

When considering at the location of the property, it may work to your disadvantage to go for something straight away due to how cheap it may be or how low-priced the properties are in a certain area. If that area is not in demand by the students, then it’s not really worth the effort. Studies¹ have shown that 20% of the 700,000 student lettings offered by traditional landlord sector in the UK are unfit for letting. You don’t want to add your house to be part of that by buying a block of houses in a run-down area or an area that is renowned not to be student friendly.

From my experience, the best areas are immediately next to or near the campus or university lecture halls, followed by houses on or near bus routes leading to the university and town centre. Also these houses tend to have better capital appreciation followed by those that are maybe two to three miles away from campus.

¹ A news report on student housing, www.guardian.co.uk

Chapter 4 - Finding the right student tenant

Finding and attracting the right student tenant for your house depends primarily on three factors:

1. The property
2. You!

The property

Getting the right tenant will be significantly determined by the type of property you have. A two-bedroom city apartment may do the trick in attracting the affluent students but could, depending on your financial constraints and mobility, have limitations on the competitiveness of the property towards the student market.

What I have found to be most adaptable and suitable is two-bedroom, three-bedroom and four-bedroom houses. In some cases, even a five-bedroom or more house. My reasoning for this is simple – if I can’t find students to let it out to, then I could just as likely let it out to a family who are looking for such a property to rent.

The most popular, it would be safe to say, is the three-bedroom terraced house which becomes a four bedroom property once the living room or dining room gets converted into a bedroom.

You

When I used to hear the word ‘students’, I would automatically convey the image of three chain-smoking, beer-swilling layabouts who would never pay me the due rent! How accurate or not I was in my generalisation is not important. What is important is how I want to run my property and what types of student tenants I want in there.

First and foremost, you have almost definitely bought this book, as you are comfortable with letting your property out to predominantly 18 – 22 year olds.

Secondly, this kind of stereotype described above is in all honesty, a backward approach and such pictures could be painted of different people from different walks of life!!

Lets not ignore the fact that if let out to students, then you must be comfortable with the idea that three, four, five or even twelve or more (!) students in one house will inevitably lead to more wear and tear. You may have to refit the kitchen and bathroom every three to five years, lay new carpets every two to three years and lets not forget that washing machines will be susceptible to heavy usage and will need upgrading sooner than not.

Finally, bearing in mind that there is no longer a one-size-fits-all existence within the student market, you must have a good idea of what type of student you want as your tenant. In general, student rent fluctuations are pretty flat compared to residential and professional lettings and it is fair to assume that the standard prices of rooms vary from £40 to say £80 a week.

Advertising

The best way of advertising your property is by using online accommodation websites directed at students; liasing and providing your information through the university housing office; Contacting and advertising your property through the students union (a list of which is provided in the reference section) and through the local newspapers.

Another more creative way of promoting your property is by sticking up information of your property throughout the campus, but check to see if this is permissible with the university authorities first. Maybe even the University Library has a notice board or something similar whereby the students can take your contact details from a handy detailed A4 piece of paper.

Every university has an accommodation office that will help to find suitable, privately rented accommodation as well other useful local information. The best way to find out how things work for each university area and private tenancy is to get in contact with the specific university’s accommodation office and get more information. All contact details have been provided for each university.

Some universities offer an affiliated landlord scheme. What this means is that they will let out the your property as a ‘university accredited’ building – giving the student a sense of security, and for you, a definite plus in obtaining a student tenant – but will also be at a cost or fixed fee to you. It does not necessarily mean that they will collect the rent for you, nor will they show the prospective tenant around the house. For these kind of services, look at ‘letting agents’ below.

In addition to this, every student union also has a housing officer who is equipped to deal with everything from unhappiness with the room offered to problems with rent and advice on contracts or other legal difficulties with private landlords.

Advertising in the local and university press

This is an effective way of advertising. It is best to advertise in a paper that is delivered free locally or is easily accessible to the student population. The main things you should include are:

• Area – You must state clearly where the property is situated. You don’t want to spend annoying calls on being asked where the property is exactly and having to regurgitate the same information. In a similar fashion, the student will probably make less effort if he or she doesn’t know where the property is.
• Furnished – State what furnishings are included and mention important items like washer machine, dishwasher, hi-speed internet access availability etc
• Number of Bedrooms – you must put the number of bedrooms the property has as then readers will know if your property can accommodate them.
• Price – in any advert you must put the price. I always quote my properties as weekly rent i.e. £80 per week.This way the tenant assumes that the rent is £320 per month (as the tenant thinks there are four weeks in a month when there are actually 4.33 weeks in a month) when in fact it is £346 per calendar month.Your property will appear cheaper than other properties that are quoted per calendar month.If you price your property at £79 rather than £80 the impact is even more significant. You should also make clear as to what is included in your rent. For instance, some landlords include water rates or electricity bills, others don't.
• Features – if it’s got a new bathroom then say so! Anything that is not standard with a property like a garage, separate dining room, large garden or new carpets then this will attract more interest.
• Telephone Number – do not give your mobile number only! You will get fewer calls as everyone knows that a five minute call to a mobile costs a small fortune, especially to the people that you are trying to target. Put a landline as well as a mobile.

To find out about the local newspaper in the area of the property you have bought or thinking about buying visit www.newspapersoc.org.uk.

Student websites

A number of landlords advertise their property through student websites, many of which are available in the listings, relating to that particular town or city. This is great as all students these days access the Internet and their first port of call may be the Internet to browse and see if anything comes up.

In addition to this, the Students Union of each particular university may also be able to give you a comprehensive guide of where to advertise for the university or may even provide information on how you can advertise through them or their website links. A list of student union details has been provided in the reference.

Through a letting agent

This is quite a costly affair to find a tenant. They usually charge one month’s rent + VAT. However, they will show prospective tenants round, run credit checks, ask for references, arrange a standing order and do an inventory check on the property. I would recommend this if you work or live far away from the property.

The most prominent and latest initiative taken is by Bradford and Bingley Marketplace who have introduced the VarsityLets scheme. The new scheme is specifically aimed at Buy-to-Lets for the student market.

An informative section on Bradford and Bingley Marketplace VarsityLets has been provided in the rent collections section later in this chapter.

Right student tenant? No student tenants!

Drop out rates

Before you think you’ve found that perfect house with potential for great returns, a factor that is amazingly overlooked by naïve landlords is considering the drop out rates for the universities. If you have a university where a number of the students don’t finish their course, then you may suffer the headaches of being left with an empty property for half of the year. Despite the fact that student rental yields are quite stable and prices do not vary much across the UK, you might find it impossible to find a tenant - With council tax, service charges and maintenance bills, you would end up with a negative return on your investment.

Middlesborough for example, has been in the headlines due to it being a property hotspot. Terraced housing in the centre of town have gained considerable value over the past few years, with buy-to-let investors capitalising on this with view to refurbishment and letting it out to students. On the plus side, Middlesborough has seen accelerated house prices and there is a great number of students there as potential tenants. However, the University is in the process of building new multi-million pound halls of residences to accommodate the projected number of students. Taking this into consideration and accounting for the fact that Teesside University suffers from a 12% dropout rate[2], the shiny prospect of student lets in Middlesborough loses some of its gloss.

Figures show that a considerable number of London universities experience a high drop out rate with the University of North London witnessing 29% of its students dropping out of their course. In contrast, Imperial College has a low drop out rate of 4%. In the North West, 23% did not finish their course at the Bolton Institute of Higher Education. In Wales, the University of Wales Lampeter has a high drop-out of 19% whilst in Scotland, the University of Abertay Dundee sees a 19% drop out rate.

Can’t find a tenant!

If things do turn sour and the area you have purchased in does see a significant increase of unforeseen dropouts or other negative factors, then the following suggestions are some ways to tackle this:

Void Periods

As we are all probably aware, tenants come in all shapes and sizes regardless of the “student” tag and so you should try and make your property as widely appealing as possible in order to avoid your property being on the cull due to the pink and green striped wallpaper you fashioned during the summer break.

The best advice is to follow the usual guidelines of neutral decoration, minimise junk, investing in high demand student areas and to fully promote your property by using all advertising means possible.

For information on the void period during the summer break i.e. between the academic timetables, view the chapter on “Finding the right property”.

Should I credit-check the student tenants? 

Lets assume everything’s going well and you find yourself inundated with potential student tenants wanting to rent your property (!). You will naturally ask yourself whether they can keep up with rent payments and you’re not going to end up tenantless halfway through the academic year.

You can check the credit of your tenant like a lender credit-checks a borrower. This costs between £17.50-£94.00 depending on what service you require. But, we’re going to have face some facts here. Firstly, it is very likely that university student(s) will have much work history, so credit referencing them isn’t going to amount to much use and will be a waste of time and money.

Also, it is well documented that students are experiencing some tough times these days and with the ongoing debate of additional tuition fees, the amount of money they or their parents will invest, there are not many viable options to guarantee rent payment.

The best option is to you get the student tenants to sign one tenancy agreement, whereby if one of the student tenant leaves, then they will all be responsible for the full payment of the shortfall or finding a new flatmate. You may also wish to ensure they provide a guarantor, someone who will be responsible for their deposit and potential dilapidations to your property.

The relationship between landlord and tenant

We’ve all heard of those horror stories where the student tenants have had an all night party, trashed the place and done some serious fire-damage to the property due to their inability to make toast. Then on the flipside, we’ve also been exposed to stories presented by student tenants on how a crazed landlord has refused to fix the front door despite several burglaries within a week!

These extreme cases should be taken with caution and the point is to not assume too much. Your tenant is not your friend, but nor is he or she out to make life hell for you! Well, here’s to hoping not.

Remember that you are in business with each other and that is the only reason why you know each other. For the relationship to last, the following simple contract needs to hold – you are supplying a safe property for the tenant to live in and the tenant is paying you the rent on time.

University accredited lettings

You should consider using the university lettings system if you are finding it tough to channel your energies into finding the tenant. They will have better access to the students and with full respect to other landlords, they will be trusted a lot more. However, it is often tough in getting your property registered with the university lettings system, as there is much demand to be on it. They also have strict controls and measures on what type of property they want, so this will make it tougher.

Checklist:

[1] A 3-bedroomed property plus front reception converted to bedroom, equalling 4 bedrooms in total.

[2] Higher Education Funding Council statistics for 2001, www.hefce.ac.uk

[3] See ‘The Buy-to-Let Bible’ by Ajay Ahuja for more information on these types of lettings.

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