By Marc Da Silva

A number of buy-to-let landlords are turning their attention to student housing, which is regarded by many property investors as a serious and lucrative asset class.

Successful landlords increasingly own student properties as part of their portfolio, as do big institutions, including insurers Aviva and Legal & General.

With Universities lacking the funds required to build or maintain their own housing, there is a severe shortage of student accommodation across many parts of the UK, and this has helped to push up rents in the sector.

“There’s a real buzz about student accommodation right now,” said property solicitor Lisa Evans from Kirwans law firm. “With 2.28 million students studying at UK higher education institutions between 2015-2016, there’s clearly a huge market for this type of property.

She added: “Students needs have changed over the years, and landlords need to be aware of this. For example, while I had a typewriter at university and shared a bathroom with 13 others, many students now expect free wi-fi and en-suite bathrooms.

“As with any financial venture, it’s vital to do your homework first in order to ensure that your investment doesn’t leave you worse off.”

Here are nine things about investing in student property that Evans believes every landlord should consider:

1) There are increasing ways to invest

In times gone by, investing in student accommodation typically meant buying a property, gaining a house in multiple occupation (HMO) licence, and renting out each individual room, usually with decent yields.

But as the UK’s student population has increased, so have the range of investment options on offer. While HMOs are still a big draw, purpose built student accommodation (PBSA) is also attracting a lot of interest.

Investors reportedly ploughed a total of £3.1bn into the PBSA market last year, with industry giants Knight Frank revealing an increase in terms of the number of foreign investors purchasing purpose built student property.

A 2016 report by specialist energy provider Glide Utilities revealed that, when it came to this type of property, more than half of UK students wanted accommodation that included all utility bills, and expected broadband internet and energy prices to be included in the rental rate.

Over half of students wanted to be as close as possible to their university campus, and around 30% expected good transport links. One third of those questioned saw en-suite bathroom facilities as an absolute must – a fact worth knowing when you’re about to invest thousands.

2) Do your sums

The introduction of various pieces of legislation over the past 18 months has made it harder to get a good return from rental property. Investors now have to pay a 3% stamp duty surcharge on any property, or part of a property, which could be classed as a second home.

In addition, landlords can no longer claim tax relief on 100% of their mortgage interest. Prior to April of this year, a landlord whose rental income was £10,000 but who paid £9000 in interest on their mortgage were taxed at their usual rate on only their profit of £1000.

However, interest tax relief is now being cut back, with landlords currently able to offset only 75% of their mortgage – a figure that will fall to 50% next year, 25% in 2019, then in 2020, none of their mortgage interest will be tax deductible. Instead, they will have to pay tax on their total income, before claiming a 20% tax reduction.

In addition, the general ‘wear and tear’ tax relief of 10% that landlords were previously entitled to automatically deduct from their tax bill has also changed, with landlords now only allowed to claim tax relief on repairs and replacements they have actually paid for.

3) Understand your obligations

There are a number of crucial health and safety obligations that all landlords must adhere to.These include;

Having the correct insurance policies in place such as public liability, contents and buildings insurance;

Carrying out a fire risk assessment and insuring that the property has the requisite number of fire doors, fire exits and fire extinguishers. The Residential Landlords Association (RLA) has published a helpful guide on fire safety legislation that makes for important reading, while Merseyside Fire Brigade’s checklist for student landlords is also extremely helpful. It is also now strongly advised to install sprinkler systems in properties.

Making sure that there are no inherent risks on the property that can cause injuries;

Mounting handrails along the full length of the stairwells with the correct lighting fitted, and installing emergency lighting at the property; while there is no absolute obligation under the Occupiers’ Liability Act 1957 to do this, it would be best practice and advisable to do so;

Ensuring that the windows and doors meet the correct safety standards;

Making sure that the property is fit for human habitation (Landlord and Tenant Act 1985, Section 10).

Also, don’t forget to factor in the cost of fitting smoke and carbon monoxide alarms – or you could face a £5,000 fine.

While extensive, this list is by no means exhaustive. Specialist legal advice should be taken before renting out your property to ensure you have met all your legal obligations.

4) Location is everything

If you’re buying a student property purely for investment purposes rather than because you’re tied to a particular city or town, then it’s important to do your research on which areas offer the best yields.

Industry reports are regularly published on the top performing towns for student rental yields – the most recent of from Simple Landlords Insurance placing St Andrews in Scotland, Lancaster and Loughborough in the first three places on the league table.

Choose a town or city in which student accommodation is highly sought after,  then look into which properties, in which streets, tend to get snapped up first. Local specialist student letting agents should be able to help you with this.

Naturally, the university needs to be nearby, but equally important is the property’s proximity to student nightlife, whether that’s located on campus or in the town.

5) Check which licence you’ll need from your local council

Various areas are subject to the Selective Licensing Scheme, which requires that all private landlords must hold a licence for each of their rented properties.

Prospective landlords will be asked to declare any convictions for dishonesty, violence, or drug-related offences, or breaches of housing or landlord and tenant laws.

The licence can cost several hundred pounds, although some councils do offer discounts for additional lets, and punishments for failing to sign up to the scheme can be harsh; last October a Liverpool landlord was fined £1000 for failing to sign up to Liverpool Council’s Landlord Licensing Scheme, and ordered to pay the council’s legal costs.

However, if your property is let to at least three tenants who form more than one household and who share a toilet, bathroom, or kitchen facilities, then you may need an HMO licence instead. It’s best to contact your local council to make sure you apply for the correct licence.

6) Make it easy on yourself

Look for easily maintainable property – the newer the better – which will require less spend on updating and repairs, and search for three-or-four bedroomed options which tend to be highly popular among student groups.

Student properties can be heavily exposed to wear and tear, so go for durable surfaces and furnishings over aesthetics to avoid eating into your profits by shelling out on replacements.

7) Seek specialist advice on contracts

You might want to think about using a joint tenancy agreement for the whole group, rather than an individual agreement with each tenant. Then, if someone leaves the house, you won’t need to worry about how you’ll make up the shortfall.

Many student landlords also stipulate that each student tenant should have a guarantor to ensure that payments are met. Speak to a solicitor for specialist advice.

8) Market your property

You could have the best property in town, but if it’s not being marketed, potential students won’t even know it’s there. Find out if local universities compile directories of accredited private student accommodation in the area and, if so, make sure you’re in them. You might even want to invest in advertising on social media which can prove extremely effective in reaching students.

9) Have a long-term plan in mind

Do you plan to build a property portfolio and pass it on to your children when you retire? Or maybe you hope to eventually sell your property and use the equity as your pension. Whatever your plan, you’ll need to think strategically, so check out the financial health of the university you wish to provide for and look for any red flags over its own future as, if the institution goes bust, there’s a good chance your investment will too.

Decide at what point you wish to sell the property, and the sort of return you hope to see. Having these ideas mapped out at the start will help you to stay focused on your reasons for becoming a landlord in the first place, and will stop you from spending on the property unnecessarily.