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Nethouseprices quick guide: renting by the room

There is something of a negative vibe around buy-to-let right now, with a combination of tax changes and new lending rules making it potentially less lucrative an investment than it was a year or two ago. This being said, landlords can still make a great deal of money from certain types of property. A house in a university town, for example, can produce great yields, especially if you rent the property out by the room. In this guide, we set out some tips for getting the best returns in this marketplace.

Do your sums

While renting a house or apartment on a room-by-room basis is typically more profitable than renting it as a whole, this isn't always the case, so you need to do a little research. The simplest approach is to speak to a local lettings agency about how much rent is usually charged for similar properties in your area. Then we'd recommend that you use a platform like SpareRoom to determine the going rate for individual rooms in the same neighbourhood. This will give you a fairly shrewd idea of your best strategy. See:
https://www.spareroom.co.uk.

REMEMBER: You will need to factor in the cost of any refurbishment required to convert a house into a property which is suitable for multiple tenants.

If you propose to include utilities in the rent, you will need to deduct these costs from your estimated income.

Decide on the type of tenancy you want to offer

This is an important consideration because different types of lease bring with them different rights and responsibilities for both you and your tenants. For instance, a joint and several tenancy Assured Shorthold Tenancy (AST) is relatively simple and avoids a great deal of paperwork. On the other hand, individual ASTs usually bring in higher yields but they do involve significant amounts of legal documentation.

IMPORTANT: It is conceivable that a property being offered for rental by the room will fall within the legal definition of a "House in Multiple Occupation", or HMO. If this is the case, you will need to apply for a licence from your local authority. See: https://www.gov.uk/house-in-multiple-occupation-licence for further guidance.

We would strongly recommend that you take professional advice from a qualified solicitor so that you can be sure that you are not only complying with your country's specific laws but that you are also acting in accordance with any local regulations and bylaws.

Attracting great tenants

1. Think about the sort of tenant you hope to accommodate

In other words, if you are essentially targeting a student population, it makes sense to advertise with the relevant university housing department and with specialist student lettings agencies. These days, there are some superb online resources for advertising your property, of which SpareRoom is probably the most prominent, since it allows you to interface with thousands of potential tenants.

2. Do follow up personal and financial references. Great testimonials from former employers, landlords and bank managers don't, of course, guarantee that your tenants will be responsible and reliable, but they are the most sensitive guide available on likely future behaviour.

3. Think about ways of protecting your property and your revenue. Landlord insurance is the obvious option, but you might also consider asking prospective tenants to nominate a rent guarantor.

ALERT: A cordial relationship between you and your tenants depends on both parties fulfilling their respective obligations. So don't forget that you will need to carry out maintenance, do repairs and deal with any problems on a timely basis.

You have ongoing legal obligations, such as having the gas supply checked annually and, just as crucially, placing the tenants' deposit in a government-backed tenancy deposit scheme. See: https://www.gov.uk/tenancy-deposit-protection.

Downtime

One of the key benefits of renting out your property on a room-by-room basis is that you are unlikely to encounter periods where the house or flat is entirely unoccupied and bringing in no rent. True, the nature of undergraduate studies, for instance, means that student tenants might leave en masse. However, this is predictable and you can market the property to potential new residents while the current crop is still in situ.

When an individual room does become vacant, advertising it through SpareRoom (or a similar platform) is a great way to find a new tenant quickly. Word-of-mouth is often helpful, too, so think about asking the remaining occupants if they know anyone who is looking for accommodation. This has a huge collateral advantage, and that is that your existing tenants will feel as though they are getting some choice about their housemates.

Why not use any unavoidable downtime to carry out maintenance and to redecorate the room, minimising disruption during more profitable periods?

Chasing rent

The preceding steps should reduce the risk of your tenants accumulating rent arrears. But, if the worst happens, see our guide to chasing arrears at: https://nethouseprices.com/news/show/2376/nethouseprices-quick-guide-recovering-rent-arrears.

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Source: Nethouseprices 19/10/17

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