As students head back to university and investors look for attractive returns, new research has shown that students can make the best type of tenants for buy to let investors.
The research, conducted by the National Landlords Association (NLA), shows property let to students offers an average gross rental yield of 6.7%, much higher than the UK average of 6.1%. At the same time Houses of Multiple Occupation, or HMOs, for short, where a single property is let to a number of often unconnected people, attract an even higher gross yield, averaging 7%.
Lower arrears and void periods
Furthermore, buy to let landlords targeting the student market, are likely to experience fewer periods, when their property is not let.
Only 30% of student landlords have experienced void periods during the past three months; for landlords who rent to families the figure jumps to 40%.
Perhaps because of parental guarantees, the research also found that students are the least likely of all tenant types to fall into rental arrears. Only 38% of buy to let landlords, who rent property to students, have experienced arrears in the past 12 months. In contrast, 59% of investors who let property to blue collar workers had experienced tenants falling into arrears over the past year, with the figure rising to 71% where the tenant was receiving state benefits.
Disadvantages of letting to students
Buy to let experts point out though that whilst the gross yield, before tax and expenses, might initially appear attractive, letting to students can bring its own problems.
Students are typically less conscientious about looking after a property than other tenants, which can lead to higher maintenance bills.
Furthermore, the landlord is often reliant on a university or college remaining attractive to students and faces increasing competition from the establishments themselves building more accommodation.
There is also concern that some areas of our towns and cities are turning into student ghettos, which could restrict the ability of the landlord to sell the property in the future, to anyone other than a buy to let investor who is prepared to consider students.
Commenting on the figures, Carolyn Uphill, Chairman of the National Landlords Association, said: “It is encouraging to see such positive figures reported by landlords who let to students. However, it’s important to highlight that letting property to students – indeed, letting to any tenant group, is not an easy win. As a student landlord myself, I know that it can be very hard work and requires the investment of time as many of your tenants are living away from home for the first time. It is this dedication to the relationship that makes letting to students so rewarding.“
Uphill continued: “As with all tenancies, it’s important to establish a good, professional relationship from the start. It is also essential that you set out fair terms in your tenancy agreement and that both landlord and tenant fully understand their obligations throughout the tenancy. If you get this right then the tenancy generally runs smoothly.”
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