Student digs could be the answer to your buy to let woes

Student digs could answer to your buy to let woes

Buy-to-let investors have been feeling the pinch lately as the government are on a rampage to free up homes for first time buyers and solve a ‘housing shortage’. Those with mortgaged buy-to-let property may be considering selling up to prevent being stung by the restriction of the mortgage interest rate relief. Although for many, buy-to-let property is their sole income and it may not be an option.

Do you have a child that is going to university this year? Or do you live near a university? If you are considering purchasing a second property, then student property could be a more lucrative option for you. UK university fees may have increased and the number of students may have fallen but the demand from non-EU students certainly hasn’t. This had led to a shortage of student accommodation across the UK.

A National Union of Students report on student accommodation found that the average weekly rent across the UK in 2014/15 was:

Purpose-built student accommodation £146.73

Institutional accommodation £134.23

Privately Provided accommodation £168.94

The average that includes the more expensive locations such as London, where the average private student accommodation stands at £250.67 per week. Private sector rents are the lowest in Yorkshire at £119.93 and surprisingly the East Midlands at £120.37, since prices in Wales have increased over the last few years. In addition to this the average contract length is 46 weeks, although many private investors try to make 12 months’ the minimum.

With this in mind, let’s imagine that you own a house that caters for 4 students in the West Midlands and you are renting it out for the average 46 weeks per year. The average weekly rent in the West Midlands for a private provider of accommodation is £134.49. Therefore, you would be earning £6,186.54 per student, giving you an annual gross income of £24,746.16 a year. In comparison, the Home Let rental index for the average rental in the West Midlands in April 2016 at £659 per month and £7,908 per year. This figure is also for an entire household, so there is a massive difference.

Worried that the students are going to trash your much-loved investment?

Well the average deposit taken by private providers is £315 per person, which isn’t dissimilar to non-student lets. We all know that students are more than often strapped for cash, so most will be doing whatever they can to ensure that they get this back at the end of their tenancy. However, if you are forced to renew anything you can do via the ‘renewals basis’. This is now available to all residential dwellings and allows you to claim a tax relief when replacing any furnishings.

Investors have cottoned on to this in Birmingham, leading to house prices around the university skyrocketing over the years. Although there are still opportunities in nearby university towns such as Worcester and Coventry that you could exploit. Property in the centre of these locations are at the lower end of the market meaning that you are less likely to be hit by stamp duty. If you wouldn’t mind investing or live further afield check out universities that are climbing the good university guide to see if there are any opportunities.

Before becoming an investor in student property there are a few things that you need to consider.

First of all, you will also need to apply for the correct licence with your local authority, have an appropriate tenant agreement and abide to the correct safety regulations. This shouldn’t be too complicated for somebody with buy to let experience. In addition to this, many investors opt to convert downstairs living areas into bedrooms to make the most of the extra living space that the students do not use. This will require the right planning with local authorities, which can sometimes be tricky.

Finally, these rental figures are only average prices and you need to have the right standard of accommodation to be charging the higher rates. After all, you don’t want Watchdog knocking on your door, do you?

If student property is too risky, you could consider purchasing a property to let to professionals, which appears to be a common option as of late. On the other hand, if this has given you some food for thought and you need some support then please give us a call. E R Grove and Co have a wealth of experience within the property sector and can offer you advice tailored to your investment needs.