Spring 2009 // contents | back issues | contact us | mortgage express

University challenge

Landlady Liz Hodgkinson, author of The Complete Guide to Investing in Property, takes a look at student lets

As a student, Romain Record soon realised there could be more to college life than sex, drugs and rock ’n’ roll. He could become a property developer as well! So before his first year was out he had bought his first student house for £69,000 and rented it out.

That was in 2000. By the time he graduated from Loughborough University, where he had studied — appropriately — business studies, Record owned six homes. Now a full-time student landlord, he owns 25 terraced houses which he rents out to a total of 116 students.

How did it all happen? Record, 28, says: “I borrowed £5,000 as a deposit from my dad for my first house and he acted as a guarantor for my mortgage. I later sold that place at a profit. I used this as leverage to buy up terraced houses which I then renovated and adapted specifically for the student market.”

Higher standards

They get the complete treatment, Record adds, and there is no problem with choosing, because they are all identical inside. From an investment angle, the main attraction is that he is repeating himself with every student house he buys. “I know precisely what’s required and exactly how much revenue the houses will generate,” he says.

Rents start from £65 a week inclusive and although this includes unlimited hot water, there is a monthly allowance for utilities, “otherwise the temptation would be to leave every light on in the house for ever.” Each student room has a double bed and broadband connection. “As students become more financially independent,” Record says, “they are looking for a better product and demanding ever higher standards.” His business website, www.top-lets.co.uk asks: “Had enough of rubbish accommodation?”

As the student homes come under HMO (Houses in Multiple Occupation) legislation, they require a licence from the local authority. This costs around £500, lasts for five years and is compulsory, with a £20,000 fine for non-compliance. Students have to take the houses for a full 52 weeks, and contracts run from 1 July to the end of the following June.

Romain Record’s property empire has grown fast and successfully but he fears he may not be able to expand any further. “It has become almost impossible to get new mortgages, and lenders will now only take on new licensable landlords with a 50% deposit.”

Do your homework

As the combination of fast crashing property prices and stricter mortgage requirements is making ordinary buy-to-let less attractive to enter, investors are increasingly wondering about the ever-expanding student market.

Romain Record’s houses are so popular that they are all fully let by 1 July each year. But before you eye up that dilapidated terrace house with a view to cramming in half a dozen students and counting up the easy cash, pay attention to what Andrew Menear, an accommodation officer for Brighton University, has to say.

He explains: “Because the university has recently built more halls, landlords are experiencing more voids, and some student houses have been vacant all year. This means the private sector is becoming more competitive and rents are falling. Plus, we are planning to build yet more halls. One reason for this is that it is becoming unpopular to have student homes in residential areas, as they lower property values.”

A student house is usually immediately recognisable by its neglected garden, piles of cruddy bikes, curtains drawn all day and — if the students are at home — loud music 24/7. This can put both owner-occupiers and private landlords off buying homes in that area.

A real education

“In Brighton, the student sector is not as good as it used to be and we advise landlords to contact us, rather than trying to let directly to students, as if we take them onto our register, the houses can then be advertised for nothing on our website. Student landlords should certainly not sign up with letting agents, as they charge £160 for reference checks and then take six weeks’ deposit and one month’s rent upfront, which most students can’t afford.”

A popular alternative is for universities to become the tenant, and then sublet to students. “This means that we will fully manage the property and guarantee rent for 48 weeks of the year. Also, deposit protection is not needed.”

If you are interested in the student sector, don’t just buy a property and hope that students will fall over themselves to rent it from you. Instead, talk first to the university accommodation office and get a clear idea of the type of accommodation and location that is in most demand. Then adapt the house accordingly, bearing in mind that an accommodation officer will inspect it before agreeing to add it to the register, after you have sent six digital pictures to the relevant website. The property must be suitable for three to five students, with a communal room and shared kitchen and bathroom as well as a study bedroom each.

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