PART 1 - Student Lets. What you need to know.
PART 1 - Student Lets. What you need to know.
Student Lets is a key model that you should know about if you are working in the property space. Why? Well, student lets isn't specifically a property strategy, this model actually takes into account various strategies such as buy to let, refurbishment etc … but student lets is a model that can ultimately provide you with a really strong exit strategy regardless of whether you are wanting to retain or sell the property on completion. The reason for this is that there is a very strong market of learners out in the world. There are many people across the UK who travel to specific areas and cities purely because of their education.
Typically if we imagine what a student house will look like, we think of these below standard, poorly maintained, filled with rubbish and damp type properties. I became fairly passionate about the HMO strategy back when I was a student because simply put I walked around the property with a group of my friends at the time and I began thinking to myself…”if I am paying £50 a week and they are each paying £50 a week and we are all paying the pills, then the landlord is getting a very good deal.
The first thing to do if you are thinking about or even slightly interested in the student market is immediately change your idea of what a student let is and begin to think about what a student let could look like. Student Lets can be wonderful buildings that are set up to help and aid the youth of education or potentially anybody who is in that learning space.
There are many different reasons why you might want to do a student let. The first aspect to consider is the location. If you are looking at a student exit then the location must be a place with a university or an area populated with students. The second thing to mention here is that this strategy is very good when thinking about sustainable rent. for example if you take a private rent and compare it with a student rent then potentially you will have a higher turnover of people because you will most likely be on a 6 month AST (Assured Shorthold Tenancy) in the private let space whereas in the student let space you will potentially be looking to rent for groups for 1 year, meaning with student lets, you will have half as much turn over than if you were to do a private let.
Student lets tend to be favoured by certain investors and some specialise in this area more than others. There is also a feeling with this strategy that students in the right area can be more sustainable which very often leads to greater finance products. Another advantage to the student let space is that when it comes to the management of the space, you will often be able to get a local provider to take over the property in its entirety and manage that whole relationship with the students. Therefore you don't have to face and manage the students yourself, it could potentially just be about handing that property across to a provider. Some of these providers also tend to buy these types of properties when they are fully set up and equipped. This is a very powerful aspect because you could potentially buy the property, refurbish the property and then sell it based on it’s yield. This is another exit strategy idea when it comes to student lets. Some of these housing providers do often purchase stock.
Another thing to consider when it comes to the student let space, is that typically yields tend to be slightly higher when compared to the private market. So it does have a lot of pros for it. But as always these models and strategies are not one sided therefore you need to be aware of the potential pitfalls that could stand in your way in the student let space.
The first thing to mention here is timing. This is something that is really important in the student-let space and you more than likely haven't thought about this until now. So, your plan might be to purchase a property, refurbish that property whilst adding value to it and then to rent it out to the student based market. Something that you need to consider is when you are going to be completing your property, because let’s say you complete your property and it’s complete in October. Generally during this time you won’t find that there are many students looking to rent and will more than likely have to wait until the following year because this market tends to look for their property in advance.
Typically these students tend to start looking for their properties around January and February for an August/September intake. If you miss this intake then it could be a while until you actually get to rent the property, however if you time it well and have the property coming together around august time but have been advertising and marketing the property before that then your property could go straight to being occupied. This aspect of timing is neither a positive or negative thing, but it is something that you need to be aware of.
The next thing to be aware of is in terms of property, you will be looking for properties similar to HMO’s and flats, therefore you need to make sure that you are up to date with the latest legislation on that. You need to understand and ensure that if the property needs licensing, then it gets licensed correctly and if it needs certain fire alarms that you fit them. For example let’s say that you had a three bedroom property and instead of renting it to a family, decided that you want to rent it to 3 students, this can bring to the surface all different types of legislation changes, because at this time you are looking to occupy the strategy as a HMO or a house share meaning that it will fall under different criteria so it's very important that you know how you are going to occupy the space as to whether or not you need to put the correct facilities in there.
Now typically this will come down to the contracts. For example if you have three students who are living in your property and they all have their own contract, then this is definitely going to be a HMO. There is a grey area around this and many people in the past have argued around contract differences, however I want to encourage you to do things the proper way. It is not a case of finding contractual obscurities, it's about doing things the right way. You are ultimately responsible for ensuring that your building is compliant.
So when it comes to student lets...you are going to be thinking about HMO’s or flats. For example, it may be that you have a commercial development that you are going to build into 6 flats. When it comes to the student space, you may want to think about the way that you are going to develop the flats, for example, you could put in some community space such as a large space with some desks and computers in it.
It’s important to consider and really think about the market that you are aiming for. For example, the type of flats that I would buy and develop for the private let space are going to be very very different from the kind of flats that i would develop if I was developing with the student market in mind. Therefore this idea about being a little bit transient about what you are going to be doing doesn't really work in property. once you have decided that you are going to buy something, you need to be extremely clear about what it is that you are developing in order to make the very most out of the opportunity in front of you.
The next thing to look at when it comes to student lets is the numbers. you need to look at your rental income, now you may choose to look at this on a month to month basis or a week to week basis.
When it comes to the rental income you would be working this out over a 52 week period but very often in the student let market it is not a student rental, it could be a 42 week, a 44 week, a 46 week or even a 48 week. This depends on how many breaks or time the students have off. you will need to check in your area the type and length of breaks that the students have.
Another thing to mention when it comes to student lets is that the student may in fact want to keep renting at your property and as a landlord there are things that you can do if this arises. For example, you could maybe offer them a reduced rent to keep the property on while they are away meaning that they can leave all of their belongings there. it may be that you decide to do this deal at the start of the tenancy agreement or more likely you may hand this whole process off to a specialised student let provider who will manage the property for a fee. This all depends on your strategy, what area you are working in and what company you have found to work with. As always this is about how much digging you do and it's down to your due diligence.
This article is not going to make you an expert on student lets, however it should provide you with some clarity about this particular strategy and give you things to think about, so that you can start taking action and digging into your area to find out exactly how it all operates.