A Student Landlord's Tale
By Tony Bayliss
One Sunday morning in January 2003 I had just finished refurbishing my eighteenth student property. Even before it was finished, new tenants had signed up for the following academic year, and my other seventeen properties were also fully-tenanted for the next 18 months. In fact, I had a long waiting list of students wanting houses for June or September that year, and so was on the look-out for new houses.
As I screwed a big plastic sign onto the front wall of the house, which told passers by that this was one of the best student properties in town, and gave my contact details, a neighbour walked over for a chat. He had an identical house opposite which had previously been tenanted, but now he wanted to sell, and was I interested. You bet I was interested! This was a road less than half a mile from the main university campus, and the houses were all big and well-built. Most important of all was the fact that even the smallest bedroom in this type of house was a double, which is always an attractive feature for student tenants. So why was my neighbour selling?
Well, first of all he was worried about reports in the Press saying that property prices were about to crash, and he wanted to get out before that happened. Next, he'd read about proposed laws on licensing, and was worried about the costs of meeting new regulations. But what was bugging him most was that he couldn't find tenants - a landlord's worst nightmare. Previously, he'd had families on housing benefit, but the rent raised from that hardly covered his mortgage, and he'd had to pay back rent to the Council when a family 'did a runner'. Then he'd tried asylum-seekers, which worked well for a while, until the supply of tenants dried up. So he switched to students, had the property accredited by the local university, and then sat back waiting for the university to send him prospective tenants. And he waited. And waited. Some viewings were booked, but often no one turned up. When some did arrive, they looked, but never called back. So here we were, half way through the academic year, and he was sitting on an empty property, and getting no income from it. Not only was he still paying the mortgage every month, but he was also paying council tax, the exemption period having run out. Now that it was winter, he had to visit the property every week to make sure it wasn't freezing up. The guy was desperate, and there's nothing I like better than a seller who is desperate!
I asked to look around and straight away I could see why students didn't like it. Despite the fact that it was double-glazed, had a modern central-heating system, had been rewired, had no rising damp, had a new roof, and was generally in good repair, the place was painted in drab, dark colours, the carpets were all old, dirty and worn, and the kitchen and bathroom both needed renewing. Maybe worst of all, the furniture was completely wrong for the needs of students, and that's the first thing that students look at.
He'd paid £65,000 for the house in 1999 and was now asking for £95,000, which was about right, but I persuaded him that the place needed a new bathroom and kitchen, and by selling directly to me, he would avoid agents' fees, so we agreed on £85,000. He allowed me to borrow the keys to go back the next day with my builder, but I also called up some students from my waiting list, and took them to see it too. Initially, they weren't too impressed, but having shown them a house 'before' refurbishment, I then walked them over the road to my newly-finished house and showed them the 'after'. They loved it, signed tenancy agreements on the spot, and were impressed when I gave them written guarantees that the property I was buying would meet the same standards as the second one they had looked at. I even let them choose the colour of the carpets, which delighted them. That night, some of their friends called asking if I was buying any more properties, and could they go on my waiting list. That year, as in most years, I could have let a hundred properties in the same town, such was the demand from students for good quality properties in the right area, while other landlords were going out of business. In the event, I bought two more properties that year, both of which had tenants signed up even before I had exchanged sale contracts.
And did I do a good deal that Sunday morning? Well, in addition to the purchase price, I spent a further £10,000 on fees, a new bathroom and kitchen, new carpets, re-decorating and furnishing, making a total outlay of £95,000. The rent paid in following 12 months was £9,900, a percentage return of over 10%, and as rents go up, that percentage is rising. Those first tenants stayed two years, as do most of my students. Despite the warnings of a property price crash, it never happened of course, and four years later that property is now worth £150,000, an annual capital gain of over 14% per year. So my overall gross percentage return on that £95,000 investment has been 24% a year. In other words, I've already doubled my money, and it's still rolling in.
So what is the secret? Well, there are many. First of all you need to thoroughly research the area where you intend to buy your property and choose the location and type of property that students want. Students are very particular and very fussy but despite the precarious state of their finances, they are always willing to pay high rents for qualities properties.
Next, you need to manage every aspect of the tenancies meticulously from refurbishing through rent-collection strategies, to ending the tenancies in a way that ensures you get the properties back in a good condition. Most importantly, you cannot just sit back and expect the university to do your marketing for you. It will result in you hanging around biting your nails all the way through August when everyone else (including me) is sunning themselves on a foreign beach. Just like any other business, student properties need to be marketed effectively, and at the right time, if you are to find tenants.
Students are great tenants if they are treated with courtesy, respect, and given a good quality service. They pay higher rents than families, and my rent collection rates rarely dip below 99%. Moreover, they treat the properties well, and recourse to eviction procedures is almost unknown.
