HMO: Capitalising on the Student Market

Should you rent to university students?

With all due respect to university students, the thought of trusting a group of them with your property might at first feel like trusting a chimp with your BMW.

The ex-students among us know what the student populace was like when they were first set free of their family homes, and the rest of us know the stereotypes about the wild party lifestyles and irresponsible nature of the average university student.

Probably as a result of this reputation, according to YouGov, 40% of landlords would not rent to students. Combine this with the opportunities for differentiation within the student market itself, and you have the potential for an attractive, lucrative niche to exploit.

So, is the bad reputation that students have unnecessarily holding you back from widening your target market and renting to them to make a huge profit? Do the benefits outweigh the negatives? Let’s look deeper.

Catering for the student HMO market

Most typical student rentals will be HMOs, so if you have a property with 3+ students sharing a toilet, bathroom and/or kitchen, then you will need an HMO licence. Like any new property venture, the most important factor before renting out student accommodation will be putting in the research to understand your responsibilities, as well as to learn the relevant areas of legislation and strategies you should be using to your best advantage.
As you would expect, student renting peaks around August, when students leave their halls of residence and move into private rented HMO accommodation. Anecdotally, students are less fussy renters, so an older building with a high number of rooms can work well as a student house. However, in some regions students are coming to expect en-suite bathrooms, WiFi and flatscreen TVs to be automatically available, but this will depend on the area, the university, and the type of student you are appealing to. Once again, research will be important.

A Liverpool-based student letting agent conducted a survey of 450+ student tenants, and found that their most important property considerations before renting were the following:

1. A strong, reliable internet connection
2. Proximity to campus and nightlife
3. Security
4. Friendly staff
5. Communal facilities
6. Letting through a trusted organisation

As a property owner, you will of course also want to consider the local demand, student demographic, university ranking, local rental market and the supply of student accommodation already nearby.

Rent collection from students may seem like an intimidating prospect with a high potential for disaster. However, students often come with iron-clad guarantors (i.e. their parents), rents are often subsidised by loans, and rent is even sometimes paid 3 months in advance. Some landlords will also insure against non-payment, particularly those who have not let to students in the past, meaning that there are many ways to cover yourself and ensure that you receive the money you are due.

Things to consider

• Priorities – Student priorities for their accommodation will be different to most lettings. For example, students may reject a property that is difficult to reach from the campus or costs more than the average student accommodation in the area, but they may not mind renting from less picturesque areas or living beside busy roads. Do your local research and if possible find out from other landlords, the university and student forums what kinds of expectations students in your local area have.
• Furnishing – Students will usually want their property to be at least part-furnished, as many won’t yet own items such as beds and wardrobes. Second-hand or flat-packed furniture is often acceptable, which is great news for landlords looking to reduce costs. Basic décor such as neutral walls and simple flooring is generally fine, because students mostly want to make the place feel like home using their own posters, rugs and other personal touches. Landlords offering “fully furnished” accommodation will want to consider including the following items: washing machine, fridge freezer, cooker, carpets, sofa and chairs, a desk in each room, wardrobe, vacuum cleaner and bins.
• Contracts – You may want to issue a more thorough tenancy agreement to students, which could include promises such as limiting noise. Some student landlords will also issue a “mutual break clause”, so that either party can end the agreement after 6 months with 2 months’ notice. This reduces the fear of uncertainty for landlords concerned about letting to young people who have probably, until then, been fed and cleaned up after by mummy and/or daddy!
• Reputation – A landlord or letting agent’s reputation goes a long way in the student market, due to the frequency of new lets and the likelihood of recommendations or criticisms being passed around between students and university staff, both on campus and online. For this reason, be sure to partner only with reliable letting agents and other staff who are likely to be in contact with the students. Becoming an accredited landlord can count in your favour, as a way of proving that you have been evaluated independently as a supplier of quality rental property. This can create the ideal scenario for a student landlord: becoming a trusted first contact for students seeking new accommodation, and even enabling you to advertise your properties on campus.

Advantages of the student HMO market:

• Student accommodation rental contracts are generally arranged early, which can minimise the risk of void periods – at least outside of the summer months.
• Student properties tend to offer landlords high rental yields. Student property rental income generally rises by 5% per annum, and is often said to provide landlords with yields of up to 10%. We at Progressive Property say that an HMO’s gross yield (the yearly gross rent divided by purchase price and refurbishment costs) should be 12% or above.
• If you begin by offering your properties out to students, you immediately open yourself up to a wider pool of tenants. A larger market with fewer competitors than other rental accommodations means a lower likelihood of empty properties.
• Letting under one Assured Shorthold Tenancy means that all tenants living in your property have both joint and individual responsibilities to cover the rent, with the other tenants being obliged to make up the difference of any shortfalls.

Disadvantages of the student HMO market:

• Bills for maintenance and repairs are more likely due to the inexperience of your tenants and, let’s face it, the fact that they are more likely to have parties. Because student properties will probably have more wear and tear over shorter time periods, you can offset these costs against the tenants’ deposits and by using lower-cost furniture.
• Guarantors are almost always necessary for a student property, as credit references are hard to find when they are moving straight from the family home. This can create more hassle than having a simple credit check, but will mean a greater peace of mind for you as the landlord.
• With students inviting friends round at best and holding all-night parties at worst, there is also the potential for your property to receive noise complaints. Whilst you as a landlord are not actually responsible for your tenants’ noise levels, you do not want those living at your properties to create upsets in the local area, particularly if it is a quiet neighbourhood or if the neighbours have been living there for many years.
• There is the potential for your property being left empty during summer holidays. However, short-term lets and even Airbnb-style renting can make up for this, and offer you the chance for some lucrative extra income for those sunny months.

Would you ever rent to students? If not, why not? If you already have, would you recommend entering the student HMO market to other landlords?

Read more about the HMO market in this blog piece here or read about our Super HMO Course here