Thinking about investing in student buy to let property? Then read through our 10-point investment property checklist to find out if you should invest or if there are investment alternatives.
1. Will your prospective Buy-to-Let property deliver high NET yields?
Over the last six years, the average Buy-to-Let NET yield across England and Wales has been 5%, with a peak of 7.4% in East London and a low of 3.4% in mid-Wales (Lendinvest).
But even the best of these yields may prove disappointing when factors such as maintenance, repairs and void periods are taken into account.
2. Does your prospective Buy-to-Let property offer good capital growth potential?
Property in the UK generally doubles in value every decade.
However, the residential property market is highly volatile and sensitive to international economic conditions. Recession can lead to negative equity and illiquidity; some Buy-to-Let landlords might also find themselves on the wrong end of any rise in interest rates.
The last few months have seen political upheavals around the world and the knock-on effects on the global economy are still unknown.
3. Will there be a long-term, sustainable demand for your Buy-to-Let property?
As always, location is key and the more homework you do before you invest, the better. Look for up-and-coming areas where there is a severe undersupply of specialist rental accommodation for a regular throughput of transient residents.
4. How much time and money will you need to spend on your Buy-to-Let property prior to rental?
Obviously it will depend on the current condition of the property and who you intend to occupy it, but the average Buy-to-Let property is rarely fully lettable from day one of ownership and may require further investment in alterations and refurbishment.
Stamp Duty on the purchase of a second residential property has been increased in every price bracket while tax relief is being phased out. Local authority licensing conditions will have to be met and paid for.
5. How much of your time will managing your Buy-to- Let property take up?
Unless you’re going to pay someone else to manage it for you, you will have to make yourself available at all hours to sort out all sorts of issues, from a lost key to a blocked drain.
A recent survey revealed that 76% of Buy-to-Let landlords feel they are permanently on call, and an average 11 hours per month is spent on maintenance.
6. How much will you have to spend on maintenance, repair and replacements?
You can budget for routine maintenance and repairs; 83% of landlords spend £5,000 per annum on them.
But unexpected emergency repairs and breakages can make a big dent in your income and bring a lot of headaches.
7. Will you find, vet and draw up agreements with your tenants yourself?
If so, you’ll have to advertise your property and set aside time for viewings – probably in the evenings or at weekends. You’ll have to check out references and guarantors and sort out all the tenancy paperwork. If your tenants aren’t long-term, you may have to do this at least once a year for each room you let.
The average void period is 3-4 weeks and can cost you £850 every 16 months (LegalforLandlords).
Another concern is that 10% of landlords admit that tenant behaviour has led to anxiety and stress.
8. Will you receive all rental payments promptly and automatically?
Rent collection and defaulting can be one of the real bugbears of being a landlord; and it’s not easy to fix.
“Unlike almost any other service provider, landlords are unable to terminate a contract with their client if payment is not received. On the contrary…landlords have a legal obligation to ensure that they honour their side of the arrangement. Only a court may end a tenancy agreement on the basis of non-payment.”
– National Landlords Association
9. If not freehold, how long is your lease?
The length of your leasehold can affect your property’s value and “mortgageability”; it can prove costly to extend and any alterations you wish to make may need to be approved by the freeholder.
Ideally, you should be looking for a lease of at least 120 years
10. How flexible are your resale options?
Any landlord’s personal circumstances can change overnight; it’s vital to know how and when you can dispose of your property should the need arise. There should be no early exit penalties or obstructive get-out clauses and you’ll have to take your tenants’ requirements into account.
Purpose Built Student Accommodation: an attractive Buy-to-Let alternative
Many people don’t realise that nowadays you can buy property in a sector known as Purpose Built Student Accommodation (PBSA) which has been consistently delivering 8 – 10% NET yields for fixed 10-year periods.
Classified as commercial property, its value is based on inbuilt yield-driven capital growth. It is exempt from Stamp Duty (below £150,000) at purchase and Capital Gains Tax at resale
PBSA is fully managed 24/7 by professional onsite teams at no further cost to the owner; no maintenance costs, no nasty surprises. They also take care of all letting and your automatic quarterly rental payments.
It usually comes with a 250-year lease and fully flexible resale options.
View our available UK Student Property investment opportunities.