Buy-to-let-rooms-to-yo ung-women ? (Student Accommodation in general)

Member Name: sidneygee

Product:	Student Accommodation in general
Date:	05/12/01 (1403 review reads)
Rating:

Advantages: You choose the flat. You sell at a GREAT profit!!

Disadvantages: Some Rogue Tenants about.

Surely all parents try to do their best for their children ?

Well that is what Heather & I have always tried to do for our three. With this in mind that we considered 7 years' ago how to do our best for them whilst they were at University.

Never any guarantee, of course, that any of your children will go to University or even that University is the best option but, living in Edinburgh, we were quite delighted when our elder daughter decided that she would give a firm acceptance to the 'unconditional' place offered at the University of Edinburgh. In 1996, she started on a 4 year MA Honours Course in Psychology, later changing to a joint Honours MA Course in Psychology and Business Studies. A great advantage of the flexibility offered in 4 year degree courses from Scottish universities is that you have a wide choice of subsidiary subjects that you must take in your first and second year and this may allow you to change the emphasis of your final degree if you so wish.

An unconditional offer is possible in the Scottish Education System because most serious students take the Scottish Higher Examinations in 4 or 5 subjects (including Mathematics and English) in their 5th year. If adequate grades are achieved then it is THIS performance that University entry is based on - unless it is a course with substantial competition when their performance in the sixth form in more Higher examinations, GCSE A Levels or the current "Higher Still" ("Certificate of Sixth Year Studies" exams as they were in 1996).

Thus, she knew in February 1996 that she had been accepted for the Course and this happened to be at the time when I was serving out my 'notice', having been awarded the (lovely and never to be repeated) package 'offer' of early retirement from my job with (the soon to be abolished) Lothian Regional Council.

Thus, on April 1st, I knew a nice fat cheque for redundancy money would be deposited in my Bank account (and nice re-assuring monthly pension payments to follow). So we could plan to buy a flat close to the University for elder daughter (perhaps also for one or both of the other two .... ?)

Why a Flat ?
Or, to be more accurate, why bother to buy another property if there was a 'perfectly adequate' bus service to/from where we lived? Or possibly even a place in a Hall of Residence available? A place in a Hall of Residence is almost impossible to get if you are from the Edinburgh area (places in a University-owned Flat or another private flat being the only other possibilities).

We live on the western outskirts of Edinburgh, about 7 miles from the University Departments on George Square (10 miles from Kings Buildings on West Mains Road) and there is a very adequate bus service, so some of her friends from school who were also attending Edinburgh University would also be traveling in on a daily basis.

Well, could we have tolerated a four year 'sentence' of having to deal, on a day-to-day basis with our elder daughter's angst about her course work ? ... about her boyfriends ? ...etc. etc. ...?

Er ... well, (thankfully) we decided we would rather not.

In any case, University is a time to start developing your independence and we didn't want to restrict this development in any way. And also there is the attraction of the potential investment aspect (see below).

Houses tend to be more expensive and harder to find in a convenient location in Edinburgh (and do not appeal so much to the students). So a flat was the way forward, we decided.

Location
All Cities have their own idiosyncrasies as regards property (with respect to the location of the University campuses and property prices) and Edinburgh is no exception. In Edinburgh we are fortunate in that there are substantial numbers of flats close to both main Edinburgh University locations.


We decided to search mainly in the area between The Old Town (reasonably close to the George Square location of the Psychology Department) and Kings Buildings (where the Sciences/Engineering Departments are mainly located). So we set out looking at what was available and the prices. We determined that a suitable 2 bed flat would cost then between about £60,000 and £80,000 (Oh!!! Happy Days THEN !!).

By "suitable", we meant a first or second floor flat with a 'bright' kitchen/living room, a large lounge (that could be used as a bedroom), two bedrooms accessible from a hall (rather than off the lounge or another bedroom, as all too frequently occurs) and a bathroom with an outside window (so many flats in Edinburgh have 'internal' bathrooms and kitchens). Gas-central heating essential and a reasonable view would be a bonus. Oh yes, and requiring no substantial work apart from a little re- decoration.

Marchmont
Marchmont is an area of South Edinburgh that was developed between 1869 and 1900 almost entirely into 4 and 5 storey tenement flats for workers in the centre of Edinburgh. It is about a mile from Princess Street. The flats now range in size from 1 bedroom up to 6 bedrooms or more.

It is a Conservation area, but most of the buildings have been substantially modified inside and it is a very popular area with students being between the two main Edinburgh University sites at around George Square and at Kings Buildings. There is (almost) ample parking and most of the area is outside of the parking restricted areas and thus is (still currently) 'free'.

We looked at (literally) dozens of flats, mainly in this area but also in other areas, even on the outskirts of the New Town. Property viewing without appointment is traditionally on Sunday afternoons and Thursday evenings, but some require appointments to be made.

BUYING A PROPERTY IN SCOTLAND

It is impossible to go into the intricacies, advantages and inadequacies of the Scottish system here. Only to say that if anyone from 'Down South' is ever considering buying property in Scotland, they should find themselves a 'friendly' solicitor in Scotland (preferably by recommendation) and take the advice of their appointed 'mouthpiece'.

Almost all property is sold by solicitors in Scotland and the best place for getting property details in Edinburgh is the Solicitors Property Centre in George Street; a weekly paper is published with the list of property available, with brief descriptions and price guides and there is also now a website (www.espc.co.uk) which shows all properties (with new properties usually in advance of publication). 'The Scotsman' newspaper on Thursday also features a property supplement.

More detailed descriptions are available from the Property Centre, at the flats themselves, or direct from the individual Solicitors or more conveniently by downloading from the website.

Property is usually sold on an "Offers over £XXXXX" basis. Quite frequently this stated price bears little resemblance to the price actually achieved. Bids of 25% over the 'upset price', are not uncommon, and even 80% is not unknown. Thus, without advice from a solicitor, it is possible to waste a lot of money on having abortive valuations carried out, and putting bids in for properties which you never had any chance of buying at the price you wanted to pay. Although you cannot 'officially' find out how much a property actually made immediately after the offer is accepted, your solicitor will usually 'know' and will be able to 'advise', so that you do not waste your money on getting valuations done, and making offers that are unlikely to be the highest.

Of course, it is a 'racket', and I do not want to vent my spleen here. A good friend, 10 years' ago made a successful bid
of £218,150 for a property offered at "offers over £135,000", and later learned (from a friend of the vendor) that the next highest offer was £150,850. The price had been 'talked up' by his solicitor, so it is alleged ....

Update (1)
Our younger daughter, having had a substantial salary rise is now looking for a similar 2 bed flat, and her solicitor has confirmed that the normal approach now for anyone intending to place a deposit in excess of 25% is to make an offer "subject to survey". There have been reports of poverty among property valuers in the City (roflmao).

The Purchase
Anyway, in 1996, this was not the case and in spite of our 'care', we had to pay for two abortive valuations (about £180 in total) before the end of June 1996. And then, luck came our way.

In June, I had looked at four flats in Marchmont Crescent on a Thursday evening. The properties were built between 1877 to 1896, with reasonably attractive and 'sound' sandstone frontages. The cheapest of these flats was in the lower part of the Crescent, where the flats are behind less attractive flat frontages, rather than the bay-windowed 'magnificence' of the upper parts. The prices quoted were from 'Offers Over £69,000' up to 'Offers over £79,000'. This last price was for a larger two bedroom and boxroom flat in a Marchmont Crescent building, on the corner with Warrender Park Road (that divides the Crescent into the Upper and Lower parts). However, this first floor flat was quite dark (with a windowless bathroom) and poorly 'modernised', so we rejected it.

One of the other flats for sale in Marchmont was also a second floor flat on this same corner site. This was slightly smaller BUT it was actually ON the corner so that the main lounge room was blessed with a really magnificent outlook towards the Castle - a large corner bay window, with some original fittings but perhaps not the best modernised flat we had seen. The price asked was "offers over £76,000". Another flat in the Crescent was available across the road, with a bay window but not a pleasant outlook, and we knew from previous experience that it was likely to make at least £12,000 over its upset price of £78,000.

An advantage of the upper part of Marchmont Crescent is that there are currently no parking restrictions and the road is wide enough for cars on one side of the road to be parked facing the kerb. The lower part is in the 'Outer Zone' of Edinburgh and parking charges are made Monday to Friday (currently 70 pence an hour).

We were starting to get desperate .... We had another two valuations carried out, one on the smaller Marchmont Crescent flat and another on a flat opposite the main University Buildings on Lothian Street. We decided to bid for this Lothian Street flat (£74,155, compared with the valuation of £73,000). The Marchmont Crescent flat had been valued at £78,000, so that we were advised by 'the mouthpiece' (one of lesser insulting descriptions I give to members of the Edinburgh legal 'profession') that we should offer at least £82,000 to have any "real chance" of getting it - a little more than our proposed maximum.

The situation is that you should 'register your interest' through your mouthpiece and when any offer is made (or likely to be made) a "closing date" is set and all interested parties told of the closing date. So when the closing date came for the Lothian Street flat, we were quite devastated to be beaten by a matter of only a few hundred" according to the mouthpiece.

"Now what about Marchmont Crescent ...", he asked. I said that I would think about it ... since there were some new possibilities just on the market. Then I saw later in the day that the advert in the last issue of 'The Scotsman' Property Guide had been altered slightly.


Instead of "Offers over £76,000" it was now "Fixed Price £78,000". I decided to make an appointment to visit our solicitor's office. After he made a telephone call when I arrived, he told me the "VERY good news ... that the price was now "Fixed price £74,000" - the owners needed a VERY quick sale because they had bought another property, and had priced their flat accordingly to ensure "an immediate sale". It was to be advertised at this new price from the following day.

So we offered the full £74,000 and it was accepted that day. We already had the valuation survey completed, so we could proceed with the mortgage. The best deal available then being then through the Nationwide Building Society and this has continued to offer good value. Once an offer has been accepted, there is no chance of the vendor selling for a higher offer (a great advantage of the Scottish system). If a purchaser changes their mind then they are similarly 'bound' to purchase and if they don't go through with it they are obliged to compensate the vendor for any losses (re-advertising, selling for a lower price, etc.).

In whose name ?
We decided that we would use a Building Society Mortgage (tax relief then still available) and that the mortgage should be in our daughter's name. The Nationwide had indicated that there was no objection to rooms being let out in the flat, but insisted that Heather & I would have to act as guarantors for the mortgage.

That was not a problem. An interest rate of 1.25% was charged for the first year, the valuation fee was refunded and a cheque for £350 was also given as a "Golden How-de-doo-dere". Oh happy days!!!

My only criticism of the Nationwide was the vehemence with which they pursued us to try and get the mortgage agreed as an Endowment Mortgage. Later the ploy was for an ISA mortgage - the next mis-selling disaster, I reckon.


Under NO circumstances would this have suited, since there was no intention of allowing the mortgage to go for the full 25 years term - the time could be as short as 4 years .. and unlikely to be more than 8 years (this allowing for our son to attend the same University of Edinburgh for 4 or 5 years). Indeed the "Financial Adviser" seemed to suggest that we were some kind of idiots for rejecting this option (in effect asking us to 'justify' our decision, by asking ?Why?? when we told her that a repayment mortgage was our decision!!) ... to the extent that I complained about her behaviour to the Head Office ... (but that is another story).

So, on 28 August 1996, we completed the purchase, took possession and started moving in. Term started at the beginning of October.

Getting the Flat Ready
So, what did we get for the money? The flat is accessed by a door with an entry phone and secure entry into a common stair of worn stone steps, with a substantial front door on a landing with two other flats. A further three flats are on each of the other floors. When we bought it, four out of the other 8 flats were let out to students. Now it is six. The flat has three rooms plus a large living room/kitchen and a bathroom with a shower cabinet, a WC and a sink/vanitory unit.

We had been told by the vendor that the gas central heating was only 2 years' old (later turned out to be 8 years old!!), and the kitchen had been refitted about 5 years before (more like 10 years!) with an electric stove (ceramic top) and a dishwasher (!!). The bathroom was 'adequate' if 'filthy' and about 8 years' old. See my review on shower cleaning for a full account (!). Poetic justice that the vendors moved to a part of Edinburgh where the capital appreciation has not been as good as in Marchmont.

The main room (to be used for our daughter's study/bedroom) is about 24 feet by 13 feet, and we installed an MFI wardrobe and chest of drawers unit in it fairly quickly and a new fitted carpet was laid. As indicated, it is a brilliant, well-lit room with a good view towards the Castle.

The main bedroom measures 18 foot by 10 foot with (disreputable) fitted wardrobes and shelves and adequate carpeting, but poor views to Warrender Park Road.

The second bedroom measures about 11 foot by 9 foot maximum, but had been used by the previous owner as a store room. This room was in an absolutely dreadful and filthy condition. Heather was convinced that we would not be able to let out this room. It had been used for storage with a chest freezer that had frozen itself to the carpet and also used for clothes drying (using a 1950's electric heater set into the wall), so the wallpaper was mouldy. The carpet was stripped away and the wallpaper torn from the walls, the heater removed, and fan heaters put on the dry the room. Painting and wallpapering, then a new good quality carpet was fitted. Excess carpet was just enough to carpet the bathroom. A single MFI wardrobe was installed, then two new single beds were bought and one put in each of the bedrooms, and a better quality single bed put in for our daughter in the main lounge room.

All-in-all, with fees, furniture, DIY, paint, wallpaper, etc. we had to lay out almost £6,000 on top of the £74,000 paid for the flat.


The exact location is excellent. Apart from the 'Earl of Marchmont' pub, there is 'The Argyle' pub fairly close, together with a Co-op mini-market just opposite (open until 10 pm most nights) and an Off-licence, Chinese and Indian Take-Aways, a chip shop, an excellent Deli, and several greengrocers all within 2 minutes' walk. And you can park for free outside (if you can find a space). Five to ten minutes walk across the Meadows for George Square, about 15-20 minutes walk to Kings Buildings. Bliss (relatively speaking) - for a student).

Letting out Rooms

Whilst our daughter was in the flat until she graduated in July 2000, we had a total of 12 other female students using the other two rooms. It is essential to have an appropriate written tenancy agreement drawn up for the Landlord (our daughter) and the tenant. Advertising is free at the Student Centre, where enclosed notice boards are used to post flat vacancies.

Only three 'disasters'.

One first year student who moved in October 1996 almost defies description ..a spoilt little Yaahh-brat who 'flounced' out (and into a Hall of Residence) after a dispute about cleaning schedules within 3 weeks of the start of term, forgetting that she had paid one month's rent as a deposit.... And had not read the agreement she had signed. So "Daddy" was "not pleased" to get back only half of her deposit since it took two weeks to get a 'suitable' replacement tenant. A young 'lady' from Germany purporting to be a student, but wasn't. Then the local authority found out, and we were presented with a Council tax bill of over £300. And another young lady bought a Hamster and kept it in her room (in spite of a strict 'No Pets' clause in the agreement) and had to be given notice to quit.

Our younger daughter decided that Edinburgh University was not-for her, so we had to accept some expense for her three years in Oxford. However, in 1999 our son was accepted to read Mechanical Engineering at Edinburgh. Since there was 'no way' that his sister would tolerate having our son in the flat whilst she was in her final year, so he had to go into a University flat for his first year. A good experience for him, which taught him how 'good' the Marchmont flat was, and how 'fair' the rents are which we charge for the other two rooms ...

We were most fortunate when our son moved in during October 2000. He had the same 2 guys staying in the flat for term-time for the
three years until graduation. We were possibly unique among Edinburgh 'landlords' in not charging a retainer for students wishing to reserve the same rooms for the following year.

Each summer we have been fortunate in finding short-term students wanting accommodation just for the summer holidays.

When I updated this review in summer 2002, I had spent about 20 hours, mucking out the flat, cleaning the shower, resealing the shower base, and varnishing the living room floor in preparation for the next summer let ....

No problems then in getting two (apparently) reliable guys in though - a Brazilian guy and a French guy, each of whom agreed on a short-term summer let immediately on seeing the flat ("so much cleaner than anything else I have seen" ...). However, all has not been plain sailing. I spent a Sunday afternoon unblocking the khazi (for which there was no admission of anything 'unusual' being deposited in the pan). Fair put me off my Sunday dinner .......

Bills
In Scotland, students are exempt from paying Council tax, so it is important to ensure that all those who apply to become a tenant can prove that they are a student. We were lax with that German bint...

Our plan had been to at least recover the cost of the monthly mortgage payment, the cost of gas (for the central heating), the annual (£60) service charge for the heating system, costs of Buildings Insurance, TV licence, telephone rental and the cost of 'common repairs'. After the first year low monthly mortgage payment, the monthly mortgage & insurance has cost between about £230 and £330 per month; gas and electricity are each about £20 - 30 a month; telephone rental about £10 a month, similarly for TV licence. Common repairs (to roof/guttering/outer doors) has cost about £900 over the past 5 years. The monthly income from letting the other two rooms was initially about £380, and worked up to £480. The whole flat
would now (August 2003) command a monthly rental of about £750. The only bills the tenants have had to contribute to are the electricity and their own phone calls.

On this basis, we reckoned we could get a reasonable over-all return on our investment, and get free accommodation/bills for our elder daughter's 4 years at University ... and ultimately for 3 years for our son. There will be no Capital gains tax to be paid when the flat is sold since our daughter moved back in (a 3 year non-residence period is allowed before any exposure to Capital Gains tax).

Our son was paid the rent, and he transferred sufficient money to his sister to pay the mortgage and the bills. Officially, he is 'allowed' to rent out two rooms and 'receive' the net income free of tax since he does not work ....

We had estimated that at the end of the four years when the flat was occupied by our daughter, the flat increased in value to at least £105,000 - so a gain of about £25,000 over that period, with about £4,000 paid off the mortgage capital sum - on an investment of £40,000.

Update
Our son had been in residence for 2 years in August 2002 and values had increased substantially, so that the flat would then be valued at perhaps £130-140,000. No 2 bed flats in Marchmont are now advertised at less than "offers over £115,000"). We decided then that the profit (after we have been paid back the £40,000 we originally 'invested') will be divided unequally between the 3 children.

The advantage for our son is that he has two friends staying with him, so they get on well. The potential disadvantage for us is that they pay no rent during the summer months. Fortunately, as indicated, it is relatively easy to let out decent rooms in clean flats during the summer to students staying in Edinburgh, and we have yet to have had a room vacant for more than 10 days. Indeed we have lost only 20 days room rental over 7 y
ears.

Over the next 12 months until August 2003, values have continued to increase, and the flat immediately above changed hands for £192,000 in July 2003.

Edinburgh property prices never seem to go down and so, overall, most definitely a worthwhile financial investment (MUCH better than my share portfolio!)... and we have had 'peace of mind' for their period at University. That is worth so much.

The Future
Unfortunately, there is a dark cloud on the horizon for student accommodation.

There have been sad cases of fires and carbon monoxide poisoning in Student Flats.

Over the past 5 years, two Environmental Health Officers from the City Council have called to 'inspect' the premises (free of charge) and each has praised the standard of the accommodation. The central heating is serviced regularly; the furniture is up to modern requirements; it is not over-crowded (arguably it could just about take 5 students, at a pinch); and there are smoke alarms.

We also have suitable precautions to cover fire emergencies (a fire extinguisher, and a chain ladder for getting out of the window). But we saw some properties, where for example, the exhaust from the central heating boiler blew back in though the window, and where larger room had been divided by sheets of hard board, with Calor gas heaters as the heating source and there were even bunk beds in hallways.

To 'protect' students from such exploitation and potential hazards, new legislation has been brought in to cover "Houses in Multiple Occupation' (HMO).

Initially, this covered properties with 5 or more unrelated residents, to be extended to 4 from October 2002. From October 2003, this is to be extended to houses of 3 unrelated tenants, by which time we will not have to worry since thge flat will be occupied by our two daughters.

The Landlord is obliged to register the property, and get a licence. Cur
rently in Edinburgh, this costs £480 in the first year, and £360 for subsequent years, but I understand that this same licence costs £1700 in Glasgow. Obviously such costs will be reflected in higher rents and certainly a reduction in the number of flats available to rent for sharers, I reckon.

It is not only the cost of the licence, either. The current estimates is that it will cost a minimum of £3,000 to upgrade the average flat to register as an HMO, and possibly up to £9,000. I have not checked these detailed requirements yet because it could be worthwhile getting the work estimated and some at least done by DIY to make the flat easier to sell.

However, the essential 'improvements' are not necessarily allowable in some parts of the city. Our daughters are having to give up the rental of their New Town flat at the end of October. They share with 3 others and the planning legislation in that Conservation area does not permit the required work to be carried out.

Another significant impact in Edinburgh will be that rooms described as 'Boxrooms' (which are very common in Marchmont flats) will no longer be allowed to continue to be used as bedrooms. These rooms are invariably small and do not have a window, but this limitation of facility is reflected by a lower rental ... currently about £160-180 a month and that will make the rent of other rooms in the flat more expensive .....

I should say that when flat-hunting, we felt that the limiting feature in how many could share a flat was the number of b*ms per khazi provided. No more than 3 resident b*ms per khazi seemed about right to us.

Would I do the same now as I did in 1996?

Well ... probably .... but I would be much more worried about property prices and interest rates over the next 4 years than I was then. Also, if I was retiring now, on the same terms, I could not afford the exploit as easily. Consultation of the quoted average proper
ty prices in Edinburgh over the past years (to December 2002) shows the following pattern:


1975 £11,224
1980 £21,855
1985 £31,855
1990 £56,435
1995 £66,119
2000 £93,968
2001 £102,646
2002 £139,354


Thus, the only (relatively) poor 5 years' period was between 1990 and 1995 (in common with the rest of the UK). However, if I had to guess, I reckon that the years 2000 to 2005 will be as impressive as 1975 to 1980. Edinburgh property is still so buoyant ....

Another point of interest - one of the properties that we bid for in 1996, and which sold for £75,000 was for sale in 2002 at Offers over £139,950, then Fixed price of £149,950 - a doubling. Certainly my pay-off wedge and pension now would not be twice what they were in 1996. A rise of barely 20%, I reckon....

Footnote
On 27 September 2002, our younger daughter put in a bid of £102,619 for a flat at "offers over £78,000". It sold for £120,562 !!!!!

Update

Our son has now graduated and values have continued to increase substantially, so that the flat has now been valued at £190,000+, as long as the bathroom and kitchen are refurbished. Estimated costs of this is £15,000 tops. Both daughters have moved in and are decorating madly (with the bathroom refurbishing place when they are away on holiday). One unforeseen problem was the electrical wiring, when inspection showed that the lighting circuit and main wiring had not been replaced since the 1940s !! A bill for £2700 has just been paid.

Two bed flats in Marchmont are now advertised at no less than "offers over £135,000 and requiring refurbishment"..

We have still decided that the profit (after we have been paid back the £40,000 we originally 'invested') will be divided (unequally!) between the 3 children. There is about £30,000 owing on the mortgage. Thus we estimate that about £150,000 will be available to split up between the three of them. Student debts??? No way!! - our trio have made a cash profit out of their university experience.

But will they thank their Dad for his fore-sight .... ?

CONCLUSION

After Paul graduated in July 2003, our two daughters (and one boyfriend) lived in the flat until we helped our younger daughter buy her own flat in Januray 2004. We then embarked in a long term refurbishment, renovating first the bathroom and then the kitchen, whilst redecorating all the other rooms. The bathroom was completely ripped out and a new larger shower cabinet (expensive folding door) put in, with vanity unit, decent khazi (Tyfords 'Envy') and tiling/lowered ceiling. A new combi boiler allowed removal of the cold water tank and the hot water tank, so that a cupboard in the kitchen could be removed.

The kitchen was completely remodelled, with an IKEA range of units. In all, about £20,000 was spent on the renovations, whilst our elder daughterand boyfriend paid the mortgage etc. Ultimately the flat was put on the market in July 2007, at 'offers over £210,000'. In September, the flat was handed to its new owners, for the 'princely sum' of £282, 232!!!!. There were 6 offers at the closing date, and this was comfortably the highest offer.

So, the flat cost, in all, about £100,000. After taking into account 'common repairs' (say maximum of £2000?), we were left with a 'net profit' of £180,000. This (with other money) was divided between the off-spring.

When we were showing the flatto prospective purchasers, we had a 'very strange' couple who came to view ... We soon realised that they were not at all interested in buying and seemed to be checking out for all the 'problem features' that we had when we bought the flat. We realised that the woman was the daughter of the previous owners ... she seemed furious at the likely sale price ...

Oh happy days ..... (but I am so glad I do not have to finance 3 children through University in 2008 ...)



© Sidneygee 2001/2002/2003/2008

Summary: The trials & tribulations of long-term investment in a student flat