Five back-to-school lessons for property investors Is student buy to let still a good idea?

As investors in buy-to-let student property prepare for the start of the academic year, is the idea of cashing in on student digs still a good idea?

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Letting your property to students is something parents and grandparents have been doing for decades.

Earlier this month online estate agent Housesimple.com claimed that over the three years 2015-2018 a parent who bought a property to rent to students could have made enough of a profit to have paid their own child’s university tuition fees.

In Coventry, which Housesimple.com research rated as is the top university city for house price growth, the average property price rose 61%, from £114,625 to £184,690, since the latest graduates started their three-year degree courses in 2015.

Property prices over half of the UK’s top 50 university cities rose £28,725; enough over the past three years to cover the £27,250 tuition fees for a three-year degree course

In fact in some areas, the house price rise since 2015 would have funded a three-year degree course.

Where to buy

Housesimple.com included the UK’s top 50 ranked universities, according to The Guardian in its research, as well as Land Registry figures.

In Manchester (34th ranked university in the UK), the current average property price is £174,044, up 26.7% or £36,626, since 2015. Essex (31st ranked university), Bristol (20th and 37th ranked) and Kent (35th ranked) have all seen average house prices increase more than £53,000 since 2015, which is twice the cost of funding a three-year degree.

Cambridge saw a £37,594 price increase and Oxford £28,028 since 2015.

It’s worth noting that average property prices in Cambridge are £440,126 and £402,020 in Oxford, much higher than many of the other university towns, and possibly out of reach of all but the richest few.

Student buy to let – should you jump in?

One: Do your homework

James Davis, founder of Upad.co.uk and himself a portfolio landlord, says investing in property to let to students can be a shrewd move but it shouldn’t be viewed as an easy investment option. “Whereas in years gone by, student landlords could get away with buying an older property and ‘equipping’ it with some second-hand beds and desks and be assured of regular rent income, the landscape is quite different now.  An increase in private developers building smart, contemporary and potentially more appealing student accommodation means that landlords in this sector need to now up their game.”

Two: Be student ready

Davis says student renters have become more discerning and will, “expect not just a clean and freshly decorated property, but the assurance of a high-speed internet connection and other added extras such as the inclusion of utility bills, a regular cleaner, usable outside space for entertaining and good quality kitchen equipment – perhaps even a dishwasher.”

He says the growth in purpose-built student accommodation has certainly added to this increased expectation from student renters, however, given the choice many still prefer to live in a traditional property and so investing in this sector can still be a good move, “it just means that those doing so need to give a little more thought to the finishing touches”.

Three: Know the area

David Hollingworth, a mortgage expert at L&C Mortgages says if the property is in a university town that’s not local, it will be important to think about how you will manage it. He adds: “The numbers may work well for property elsewhere in the country but you’ll need to factor in the cost of managing that effectively and finding a letting agent that will take care of the day to day issues and responsibilities.”

Four: Get the right mortgage

Hollingworth says not all buy-to-let lenders are as keen on student tenancies as others. “Student houses may offer a better income from a shared property than would otherwise be typical, but whilst it’s certainly not fair to stereotype students, they may not take the same care and attention that a family would.  It may make sense to factor in some additional maintenance to ensure the property’s upkeep between tenancies.”

Five: Be aware of new legislation

Alexandra Morris, managing director at online letting agent MakeUrMove, says a property being split to house students could need to be registered as a house of multiple occupancy (HMO).

She explains: “Planning permission may be needed to make the switch to multiple occupancy, and in some areas a local authority license will be required. Once a conversion to a HMO is made, additional checks such as electrical safety checks are required, which will be an extra outlay to get the property ready to put on the rental market.

“Investors should also note that the HMO regulations are changing as of 1 October 2018 and fines for non-compliance will be increased significantly.”

“For investors considering purchasing property at the start of the academic year, it’s also important to note that students generally start looking for their accommodation for the following year from as early as November, so a property would need to be ready to put on the rental market by that point in order to be considered by the majority of students.

“Once established, student properties also require a close level of management as there is tenant churn every 12 months. Investors should consider if they have the time to dedicate to this, or the funds to employ an agent to manage the property.

“Despite the more complex set up and management process, a student property can be a very good investment and it can be very rewarding to provide housing to young people as they’re starting out in life.”

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