Each month, Tom Entwistle, a residential and commercial landlord since the 1970s and founder of LandlordZONE, the longest serving website for landlords in the UK, offers a landlord’s perspective on a topical issue.
This month, Tom shares his insights on the student lettings market. What has changed in the student market post pandemic? Can student lets still pay? And how can small landlords compete against build to rent operators?
The student lettings market still offers great opportunities for those landlords who are prepared to approach the business in a professional way, that’s my view. This is especially so as we emerge from the COVID pandemic, which in the early stages hit student landlords quite hard. But now there are strong signs of a revival. In the UK we’re seeing tremendous growth in demand once again.
However, competition is much stronger than it was in the past, when a landlord could get away with letting what could be kindly described as pretty sub-standard accommodation, or to be totally honest, much of it could only be described as pretty grotty! A private operator in the student landlord market has had to up their game considerably in recent years.
This is down to competition from other private landlords and a number of large institutional investors moving into student housing, who are offering attractive additional facilities and setting their standards high, but with commensurate premium prices. They are meeting the higher expectations that a certain group of modern students brings.
Nevertheless, with the right approach, small-scale student landlords can compete in their niche and can make very good returns from student properties located in the right areas – like all property investment, location is crucial, and none more so than in student housing. Students like to be close to their place of study, to their peers for social interaction, and to student watering holes.
“My advice to anyone starting out in student housing: be prepared to put a lot of effort into researching local markets and discovering local student preferences, before committing to any one location. There is no substitute for walking the pavements and actually observing student behaviour, as well as asking questions, speaking to university accommodation officers and local letting agents.
Any type of multi-occupier rental housing, or house in multiple occupation (HMO), requires a lot more management work from the landlord than does a single let. For that reason it’s often difficult to offload the work onto a letting agent – student landlords are invariably hands-on.
You should also be aware that there’s more wear and tear with a multi-occupied student house than a standard buy to let. Be prepared for a bit of serious cleaning, maintenance and re-decoration annually.”
But, having said that, the financial returns are so much more rewarding, as also can be the human interaction with your student tenants. Take a typical three bed single let which would perhaps command a good rental income of somewhere between £600 and £900 per calendar month, depending on the location in the UK. But beware, if you take in five or more students you enter the realms of the mandatory licensable HMO, so safety requirements become more onerous and expensive.
So use the three bedrooms, plus one downstairs room as a bedroom to house four students, keeping the house just below the HMO mandatory licensing scheme (though it is still technically an HMO for minimum safety standards).That leaves a lounge (common room), a kitchen, downstairs toilet and a shared bathroom, making a comfortable shared home for four.
Now, with four students, instead of commanding the single let monthly rent, the income is likely to be in excess of £2,000 per month, with no council tax to pay for students. Financially there is no real comparison between the two, and with just a small number of these student houses, providing you manage them efficiently, keeping voids down to a minimum, and servicing the needs of your student clientele, it means you can realistically achieve financial freedom.
Research has shown there are six key factors that influence students when seeking their university accommodation:
The £72 billion UK student market (Knight Frank estimate) has seen student demand bounce back from the depths of the pandemic and all indications are that the 2022-23 intake will be stronger than ever.
It pays to keep a close eye on demographics when letting property and in the case of students all the indications remain positive. It is well known that UK higher education has suffered somewhat from an English demographic dip, due to low numbers of 18 year olds in the population.
This dip has now worked through the system and as the Higher Education Policy Institute report projections to 2035 show, this trend is due to change from 2021 onwards, when the number of 18 year olds is increasing again. Although this trend will reach its peak around 2030, and from there begins to decline, the participation rate in higher education has been rising continuously in recent years.
Taking into account these projected increases in participation, the figures produced by The Higher Education Policy Institute (HEPI) indicate quite a drastic increase in England, where around 358,000 more student places would be needed for Higher Education.
There are expected to be much more moderate increases in Scotland and Northern Ireland. These optimistic projections do however need to be qualified by the possibility that a government could re-introduce a numbers cap.
So, confidence is returning to the sector following the lower occupancy rates and rent collection difficulties experienced in 2020-21 as learning shifted online and restrictions on movement hampered students’ ability to travel. This academic year however (2021-22), the sector has surpassed expectations as students return to campus with average occupancy levels of over 90 per cent.
While these forecasts must always be tempered by a number of known factors that could impact the projections, these are likely to increase the figures rather than decrease them. If the Office for Students’ access and participation targets are met, there will be far greater numbers of disadvantaged students entering the higher education system. And as the country navigates a difficult economic climate post-pandemic, there could equally be larger growth in higher education as school-leavers remain in higher education to avoid entering the labour market at a challenging time.
Yes, students can still pay. In many ways students can bring a more reliable form of rental income than individual tenants. Most are funded by grants / student loans and most will prioritise rent payments, paying in advance when the term loans come in.
In many locations, especially London and the big cities, student contracts run for the whole 12 months, so income is guaranteed regardless of whether the students occupy over the holidays and summer months.
If the student tenancies are set-up correctly, that is with joint tenancies, the liability for rent payments being joint and several, means that the rent is payable as a whole group, regardless of whether a student defaults. Leavers then have to be replaced by the students themselves if they are to avoid paying more rent. What’s more, experienced student landlords make sure that the parents are brought into the equation as guarantors, giving extra security by way of rental guarantees.
There is no doubt that increasing investment in the growing student housing market by institutional investors, the likes of the Unite Group plc, operating in 25 major UK towns and cities, brings serious competition for the small scale student landlord.
These large scale operators bring shiny new tower blocks with en-suite bathrooms, common room facilities and gyms – all sorts of additions that are attractive to those students who can afford the premium rents that go with this high spec level accommodation.
But this does not mean that there’s no room for the traditional small scale landlord offering clean, affordable accommodation in traditional housing stock, often converted for student living. They may not have en-suite facilities and gyms, but they do offer cosy private living for a small group of friends who prefer to live this way, and many do.
There will always be demand for this type of student living where students prefer to live in a privately rented house, which usually accommodates around four to six people. Students usually stay in university halls for the first year, after which, having made friends, they like to choose who they live with for their second and subsequent years. With the experience of living closely together, friendships made at this stage often last a lifetime.
Small scale living also offers more choice over where students choose to live. This may be a little further from the university campus, but the popular student areas of most university cities are served by good transport links, as well as lots of shops, laundries, bars and food outlets.
Landlords need to set the rent of the accommodation they are offering to make sure they hit a certain competitive price point, but nevertheless modern students have a minimum expectation of the facilities they require. In order to compete successfully against other small scale student landlords and the big build to rent operators, there are a number of essential features that students expect: Number one priority is usually a good, reliable broadband connection and Wi-Fi access.
In addition, to remain competitive you should ideally be looking to supply the following:
You need to keep your rent competitive with both the institutional offer and the other small scale landlords, so keep a close eye on the local rates and try to keep in line or slightly below the average. As a small scale landlord you are in a better position to not only give efficient out of hours service when things go wrong, you can keep your costs much lower than the big operators.
It’s a good idea to liaise carefully with the university accommodation officers, making sure they are aware that you are meeting local authority safety standards and, for example, the standards set out in The Student Accommodation Code for both facilities and safety.
To assure your student tenants that you are operating to a professional standard, membership of a landlord association, such as the NRLA or any local authority assurance scheme is a great idea.
Running a student lettings business can be quite demanding, but the rewards are there both financially and in terms of the satisfaction of knowing you are helping your students by providing comfortable and safe accommodation.
The sector is growing, offering excellent opportunities for those willing to put in the work required to make a very good income.
Tom Entwistle has been investing in and developing commercial and residential properties for over 40 years. Tom founded the first landlord website, LandlordZONE, in the UK back in 1999. And has been a regular contributor to the website, real estate journals and a speaker at property events for over 20 years.
