More than three quarters of landlords say they won’t rent a property to students, according to a recent poll – and 64% wouldn’t rent to tenants on benefits.
But dismissing whole groups of tenants could mean landlords are missing out on potential rental opportunities.
Despite their reputation for throwing wild parties and causing accidental damage, student lets can have particularly high yields – typically between 6-10%. Meanwhile as councils struggle with a lack of social housing stock, renting through a council could guarantee steady rent for up to 7 years – no management, no maintenance, no letting fee and no fuss.
Property investor and mentor, Bindar Dosanjh, who works with new and developing investors through the Female Property Alliance, has seen more and more landlords shying away from high-risk tenants without weighing up the pros and cons against their investment strategy.
She says: “I always warn landlords not to judge a book by its cover – good or bad. Tenants on benefits get a bad rap. But renting to tenants on benefits can really work for the right property in the right area. Some of my best and most reliable tenants are vulnerable people who happen to claim benefits as part of their income – and for me as a family lawyer, renting to them is a way to give something back.
“If your strategy is about long term capital growth and you want to be hands off – renting out to a local authority for social housing tenants can really pay off. I’ve done this with several properties. With the value still going up I’ve pulled the money out of them to fund other investments. I could be making more money from them renting privately, but keeping this part of my portfolio ticking along in the background suits my purposes.”
Landlords renting to social housing tenants will come under increasing pressure with the roll out of Universal Credit, which will see benefit payments being made directly to the tenant rather than the landlord. That means landlords have to rely on tenants to budget effectively for rent. Many landlords are working with those tenants to change the due date of rents to coincide with Universal Credit payments, to try and make the transition easier. But the fact remains there is now an extra layer of risk for landlords – which could end up effecting the most vulnerable tenants.
It is also effecting how landlords invest.
But despite the increasing pressures on landlords, narrowing the focus of who you’re prepared to let to – and therefore how you build a portfolio – might not be right move.
Alex Huntley is Head of Operations at specialist insurers Simple Landlords. She says: “Most landlords want to find nice, reliable tenants with a spotless renting history, steady income, and sedate lifestyle. But the perfect tenant may not always exist, and with the property market changing and landlords feeling the pinch, it might be time to think outside the box about tenant types. With the right insurance, landlords could still get the peace of mind and confidence they need to broaden their rental market, and diversify their property portfolio.
“An insurance company’s job is to assess risk – and you’ll end up paying up to 75% more to insure a property for tenants on benefits than you would for professional working tenants. But sometimes that extra investment in your insurance could give you the freedom to invest in property differently. Sticking to the same safe and secure formula doesn’t always pay off. Look into Rent guarantee and Legal protection, and consider taking out Malicious damage cover. Always check your insurance policy to see if tenant references are part of your cover requirements – and double check you’ve got everything in place.”
Bindar’s advice is to look after your good tenants, and insure for the bad ones. She adds: “Sometimes, no matter what type of tenant you have, things do go wrong. If you’re insured you can put it right with the minimal amount of fuss or personal expense. Having specialist landlord insurance is essential – and spreading your risk by having a diverse portfolio is desirable.”
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Daniel Peacock