You are attracted by the higher returns of HMO’s and can’t decide if student accommodation will be the right choice. Student housing has achieved solid results in the past, but you want to know if investing in student housing remains attractive. What will the future hold for student HMO’s? If you want to make an informed decision, read on as we will bring together and discuss information that you may find valuable.
What does Investing in Student Housing look like?
The days of damp and shabby student digs are mere memories of a previous era. If you look hard you may still find some, however students today have different needs and higher standards. The needs of a modern student embrace spacious living quarters, en-suite bathrooms and outdoor space for starters.
Rented student housing falls into two categories – Purpose Built Student Accommodation (PBSA) and Houses of Multiple Occupancy (HMO’s). PBSA’s are a popular and convenient choice for first year students before they seek more independent living in an HMO. As an investor it is possible to invest in both, however more flexibility and all-important exit strategies will be found in HMO’s.
Renting an HMO to students will be much the same as a standard buy-to-let, just with tighter regulations, a greater number of individual tenants within the same building and different considerations for living arrangements. You can choose to either self-manage or appoint a letting agent to take care of the tenancy agreements and tenant relations. If you are not familiar with HMO’s, why not read our article What is a HMO Property?
The Benefits of being a Student Landlord
HMO properties in general provide higher returns on investment than a standard buy-to-let. The reason being that it is possible to take a single family dwelling that would normally be rented under one tenancy agreement, and divide it into multiple separate tenancy agreements where you charge per room.
In the right location, demand for those rooms can remain high. A steady flow of students each year will point towards a continued requirement for student housing. Even throughout the difficult period of 2019 – 2021, leading provider of PBSA accommodation, Unite, reported that an average of 94% of their rooms were filled across the UK.
Choosing an ideal location for a student HMO can be much more straightforward than meeting the needs of other types of tenants. Areas with large student populations are easy to find and the key residential criteria are simple to research. A safe location with good transport links to a university and local nightlife will be a solid starting point.
The Considerations of being a Student Landlord
As with any HMO investment, strict regulations will need to be adhered to and a licence may be required. Each local authority in the UK will have their own requirements so you will need to check with them before you invest in a property. Some areas will have planning restrictions on HMO properties which will restrict HMO licences within that vicinity.
The initial costs of investment may be higher, particularly if much work will be required to sub-divide a dwelling and install extra bathrooms along with meeting the regulations for fire doors, heat and smoke detectors and exit routes. Requirements specifically for student housing may include excellent internet connections, workstation furniture and entertainment such as TV’s.
The shorter-term nature of the tenancy agreements, higher wear-and-tear and the need for a guarantor will require more management demands when compared to a family buy-to-let. It can therefore be a great idea to employ a letting agent who specialises in student rentals to manage the property for you. This will of course save you time and stress but also chip away at your earnings.
What does the Future of Student Housing hold?
It would be reasonable to question the future of higher education and how student demand will evolve over the long-term. Events have forced the progression of online learning systems as educational institutions embraced technology and sought alternatives to face-to-face teaching. Will we therefore see a decline in student tenancies over the coming years?
In addition there has been a 56% slump in EU students coming to the UK as Brexit and Covid restrictions dealt a double blow. While the flow of non-EU students has remained buoyant, this may have been boosted by tighter travel restrictions to Australia. The Antipodes have historically been the number one destination for international students followed in second place by the UK.
Despite these concerns, placings at UK universities have remained strong with no significant signs of reducing. It is likely that face-to-face education will not be entirely replaced by online systems as the dynamic and motivational environment of communal learning cannot be replicated in self-directed home environments. In addition, the opportunity for students to change location and experience life away from their hometown is likely to remain attractive.
Further encouragement comes from Office for National Statistics data that suggests the percentage of students staying in private rental accommodation remains joint highest at 31% in 2021. Certainly in major cities like Edinburgh, demand for student housing in August 2021 significantly outstripped supply.
A major consideration when investing in student housing will be knowing your exit strategies. What will you do with the property if student demand falls off a cliff? Having an HMO in a student-dependent area could limit your chances of finding alternative tenants or selling. However, the beauty of an HMO itself can be found in its ability to be transformed into a family home or separate flats for example.
When considering HMO’s in particular, it is important to do your due diligence and understand your legal responsibilities as an HMO landlord. The penalties for failing to comply can be significant. Courses like our HMO Advanced Course are designed to arm you with the knowledge you need to remain safe and most importantly be a fantastic HMO landlord. To raise the standards and the reputation of landlords in the UK, we are determined to provide the highest levels of education and resources to investors just like yourself.