Many people explore the student buy-to-let market for a range of reasons, the most common being to make profitable revenue.
While investing in HMOs is a popular way to generate a passive source of income and enable financial freedom, with the many rules and regulations involved, it can be daunting too.
In our guide for first time student landlords, we break down the key considerations for anyone thinking of renting out a property for the first time.
So, whether you’re looking to let out your first student property, or have aspirations of building a HMO portfolio, the following tips and advice can help you manage your property successfully.
Understanding Your Legal Obligations
As a student landlord, you have many legal obligations to ensure the safety of your tenants:
Fire Safety
- A smoke alarm and fire extinguisher must be installed on each floor of the property and all alarms should be in good working order at the start date of each new tenancy.
- A carbon monoxide alarm must be provided in any room with a solid fuel burning appliance such as a coal fire or wood stove.
- All furniture should meet fire safety standards and should display the appropriate labels.
Gas and Electrical Safety
All gas and electrical equipment should be safely installed and maintained by a Gas Safe registered engineer. It is also recommended that all appliances are checked annually via Portable Appliance Testing (PAT) to ensure you are meeting your legal safety obligations.
By law, landlords must also get a Gas Safety certificate every year and ensure a copy of this is provided to new and existing tenants within 28 days of the check.
Energy Performance Certificates
An Energy Performance Certificate (EPC) gives the property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years.
It is a legal requirement to have a valid EPC for a property when marketing it for lettings, and from April 1st, 2018, any property which does not have a minimum rating of E on its EPC, will be unfit for rental accommodation.
Any rented property which breaches this requirement could find its owner facing fines of up to £4,000.
Right to Rent
As well as abiding by a range of health and safety obligations, landlords are also responsible for checking that their student tenants are legally allowed to reside in the UK. Failure to carry out these checks could result in an unlimited fine and up to 5 years in prison.
Landlords must also provide their tenants with a copy of the Government's How to Rent Guide, which gives practical advice about renting in England.
Protecting Your Tenant's Deposit
As a student landlord, you must protect your tenants’ deposit with a UK Government-approved deposit protection scheme and provide students with the information regarding the scheme you have chosen within 30 days.
These deposits must then be returned in full at the end of the tenancy, unless there is a dispute about unpaid rent or damage caused to the property. There are three such schemes in England and Wales:
Further Obligations for HMO Landlords
When it comes to renting out student HMOs, it is also your responsibility to ensure all communal areas are clean and in good condition and that there are adequate cooking and washing facilities for the number of people living in the property.
If your HMO is occupied by multiple people, you must apply for a license from your local council. Licencing Is a significant obligations for landlords and affects ALL properties where 3 or more sharers, the licenses fall into one of numerous categories depending on the area and number.
More details about the legal obligations of landlords letting out HMOs can be found on the GOV.UK website.
Finding the Right Tenants
For many student landlords, finding the right tenants can be difficult when the majority of students do not have a credit history or previous renting experience. Whilst standard tenant checks may not be useful in these circumstances, there are ways in which you can cater to students whilst protecting your investment.
Secure a Guarantor
A guarantor is responsible for paying rent on behalf of a student tenant should they not be able to pay it. Obtaining a guarantor for students is the most common way landlords guarantee payment each month and the process is relatively straightforward.
Whilst guarantors are usually a relative or close friend of the tenant, this is not a necessary measure - the important thing is that they have a good credit history and savings above a certain amount. You can carry out basic credit checks on guarantors to determine their suitability.
Furnishing for Student Properties
Another way to attract students to your property is to ensure the property is part or fully furnished as many students will not have furniture to bring with them. Essential furnishings include:
- Essential cooking equipment and white goods
- Chairs, sofas and tables
- Beds and mattresses
- Desks in each room
- Adequate power outlets in each room
Be sure to carry out an inventory before the tenancy begins to ensure everything is itemised and can be billed for if damaged.
Financial Responsibilities
As you are making a financial profit, you must pay income tax on any rental income, minus your day-to-day expenses.
You will also need to pay Class 2 National Insurance if your profits from rental accommodation are £6,515 a year or more and if renting out your property counts as running a business. Renting out property will count as a business if all of the following apply:
- Being a landlord is your main job
- You rent out more than one property
- You are buying new properties to rent out
Council Tax
If your HMO is wholly occupied by full time university or college students, your property will be exempt from paying council tax. If only some of the tenants are full time students, you will be eligible for a discount on the amount of council tax paid.
Managing the Property
Once students have signed a contract and moved in, your obligations do not end – you must maintain the property, ensuring it is kept in good condition, and any gas or electrical systems continue to meet specified safety standards.
You are also responsible for repairs to the property, including:
- The structure and exterior of the property, including the walls, roof, foundations, drains, guttering and external pipes, windows and external doors.
- Basins, sinks, baths, toilets and their pipework
- Water and gas pipes, water tanks, electrical wiring, boilers, radiators, gas fires, fitted electric fires or fitted heaters.
If you refuse to carry out repairs, tenants can take legal action and in cases where hazards are involved, the council may be asked to inspect your property under the Housing Health and Safety Rating System (HHSRS) and take any action that is necessary.
Student Property Management Solutions from Digs
Our property management services for HMO landlords are designed to take the stress our of managing your student property. Our fully managed service includes sourcing reliable tenants on your behalf, collecting rent, and handling all communications and property maintenance, so you can rest assured your property is in safe hands.
With varying levels of support, from providing viewings only to our fully managed service, you can be as hands on as you want to be. To find out more about our property management services, call us on 0117 930 8750, or complete our online enquiry form.
