When letting a new in multiple occupation (HMO) property, deciding the rate to charge students is one of the most important aspects of being a landlord.
Charge too high, and you risk putting potential students off and missing the critical chance to ensure your property is occupied for the new term.
However, charge too low and you could end up facing a financial loss. It’s a fine line to tread but getting it right can be the difference between your HMO performing successfully financially, or not.
We’ve put together some factors to consider when valuing your HMO and how you can be sure you’re charging the optimum rental rate below.
Why It Matters
Despite the HMO market being strong, charging a rental rate which is too high will reduce the number of students who are interested in, or can afford your property.
This limits your options when it comes to attracting tenants and may mean that eventually you end up being negotiated down on price or worse still, means the property remains unoccupied.
Tenancy voids are one of the key factors affecting the profitability of buy-to-let properties and so it’s recommended to minimise them as much as possible. For tips and advice on how to do avoid tenancy voids, check out our dedicated blog post.
On the other hand, charging too little rent limits the performance of your property financially and restricts your ability to grow a portfolio of buy-to-let properties should you wish to do so.
Factors to Consider When Determining the Rental Rate
Whilst there isn’t an exact formula to finding the optimum rental rate, there are a lot of factors to take into account when deciding how much rent to charge:
The Value of the Property
Your rental yield shows you what you can expect to earn from a buy-to-let property based on the property’s purchase price.
In order to compare rental yields across various properties, you can calculate the yearly rent as a percentage of the purchase price. This is an easy and simple way to compare one investment property with another.
It’s important to note however that rental yield should not be what you solely base your rates on; other factors must be taken into account.
The HMO market has been very strong in recent years and so the rental yield on a property which was bought 30 years ago, may not necessarily reflect current market averages and so landlords should consider the current value of the property.
Location
Higher rental rates can be charged in areas which are considered more desirable, and which have access to a greater number of amenities such as transport links, proximity to universities and distance to city centre.
Research current student properties for let in the area and see what other landlords are charging to get a feel for the market.
Condition
A well-presented and maintained property which is pleasantly decorated will help it appeal to a wider range of students.
Things such as neutral shades and bright open spaces are generally considered desirable as students can put their own styling on it.
Property Features
Attractive features of the property will have a bearing on its appeal and therefore how much rent you can charge for it. Things such as gardens and additional bathrooms are particularly appealing to students.
A Key feature many students require is a fast internet connection. With a hybrid model of working both at home and at university being the new normal, a slow internet connection could be a deal breaker for a lot of students.
Furnished / Unfurnished
It goes without saying that if you’re letting a furnished property, you can charge more rent than if it was unfurnished.
Typically, student properties are always rented as furnished and should include designated working areas such as a desk in each bedroom. For tips on furnishing your HMO for students, check out our guide here.
Tenants
When letting a student property, the advantage is that you already know who you’re trying to attract and so you can cater your property's features accordingly.
By tailoring your property to meet the needs of students, you can ensure you continue to attract the right kind of tenants year on year.
Increasing the Rent for an Existing Tenant
Whilst many students choose to move on after a year or two, some may choose to stay in the property and so it might be necessary to increase the rent occasionally.
Increasing rent can sometimes mean students leave and if they do stay, the relationship may suffer. It’s crucial therefore that rental increases are done professionally and in line with current market rates.
It’s also important to consider the value of the tenants. If they are good tenants, many landlords may choose not to increase the rent and risk them leaving. Similarly, it’s worth working out how much it would cost to find new students should the current tenants decide to leave and determine whether the increase to rent would be worth it.
Ultimately, the best way to determine the value of your rental property is to have it professionally valued. This takes into account all of the above factors and gives you the most accurate rental rate for your HMO
Get a Free Valuation with Digs
A professional rental valuation is a powerful tool for landlords as it ensures you are charging the correct amount of rent to attract tenants without impacting yourself financially.
At Digs, we offer free rental valuations for landlords to help you understand exactly how much rent you should be charging.
Get in touch for more information about valuing your HMO property or call us on 0117 930 8750.
