Unlocking the potential of student lets: are they a golden opportunity for buy-to-let investors? Heather Martens from Mortgage Advice Bureau explores the pros and cons.
The UK housing market offers a range of opportunities for prospective landlords. One particular niche, which is rife with opportunity, is the student let segment.
According to Savills, there are 2.2 million full-time students in the UK1. This works out to about three students per bed in built-for-purpose student accommodation. This shortfall may be placing growing strain on the private rented sector, but with this strain comes opportunity.
In this article, we’re going to dive into the world of student lets as an investment, discussing the potential benefits, downsides, and financial considerations landlords need to make.
The benefits of student lets
Students are an interesting investment for a landlord looking for a more proactive approach to letting. Here are a few of the key benefits:
1. Consistent demand
University students require accommodation every academic year, and of those 2.2 million full-time students, 1.7m are undergrads, all with a pressing need for a place to sleep2. With this many students moving through university each year, demand will be consistently high. This can provide stability to a landlord’s rental income and reduce the risk of long-term vacancies.
2. Short-term tenancies
Student lets typically operate on 12-month contracts, aligning with the academic year. While you may have tenants that will stay in the let for their entire academic career, you will have plenty that rotate through tenancies fairly quickly. This makes it easier to regularly assess the property’s performance and make any necessary adjustments.
3. High rental yields
Student lets often yield higher returns compared to standard residential properties. They’re usually in high demand, and multiple students will often share a property, which could increase your overall rental income.
Are there any downsides to student lets?
As with most things, there are inherent downsides. It’s about balancing your own appetite for these disadvantages, and finding strategies to help manage them. That being said, the potential downsides of student lets are all manageable.
1. High turnover
Annual turnover can be both a blessing and a curse. While it ensures a regular rental income, it can also lead to higher management/maintenance costs and commitments.
2. Seasonal vacancies
During the summer break, student properties often sit vacant. Landlords may need to account for this in their financial planning as you may not have any income during those periods.
3. Property condition
Student tenants may, unfortunately, not always treat the property with the same care as long-term tenants, which can lead to increased wear and tear. Setting aside a bit of each month’s income for annual repairs and maintenance would help solve this problem.
4. Limited markets
Because of their nature, student lets are often restricted to university towns and cities. This limits the pool of potential tenants and property locations, but once you find a property that works for you, it could be a great long-term investment.
When looking to get a mortgage for a student let investment, you will need to go on a buy-to-let mortgage product. Working with a specialist adviser could help you secure a mortgage with more favourable terms, and there are a plethora of specialist lenders on the market.
- Tax deductions
Landlords may be eligible for tax deductions on certain expenses in their student let, such as maintenance and repairs. This operates through the Wear and Tear Allowance or the Replacement of Domestic Items Relief scheme.
For all tax related queries, speak to a qualified tax specialist.
- Licensing and regulations
Most areas in the UK require licences for HMOs, or Houses in Multiple Occupation. These are most common for student lets so you will need to ensure you comply with this and are familiar with local regulations.
A quick guide to buying a student let
When buying a student let, in order to get the most out of your investment, you want to spend ample time researching your location. Think of university towns or cities with a high student population and take some time to consider the demand and competition in these areas.
Once you have a sense of location, choose a property that suits the needs of your student tenants. This likely involves multiple bedrooms, communal spaces, and proximity to campuses and amenities.
Following that, ensure your property is well-furnished and that you spend some time researching the best ways to market your property. This could be through university notice boards, online platforms, and even social media.
Finally, give some thought as to whether you want to handle and manage the property yourself, or whether you’d prefer to hire a property management company to handle tenants’ concerns and maintenance. Keep in mind that this will reduce your profits.
Getting a student let as an investment
Investing in student lets can be profitable for those who understand the unique dynamics of this niche. There are clear benefits, but it’s not for everyone. If, however, this is something you’re interested in, it’s well worth exploring!
Be sure to clue yourself up on all the legal requirements, and we recommend working with a solicitor for all instances where you need agreements and regulations drawn up.
For all your mortgage needs, get in touch with an expert mortgage adviser. With this being such a specific niche, it’s vital that you work with someone who knows the market inside and out. They can work with you and specialist lenders to find a mortgage that suits your specific needs and circumstances.