Student Living

Last week we finally received the great news that my son had been awarded a place on the MA course he applied for at the beginning of July.

This was a tremendous achievement on his part as the Department is rated second in the country for the subject and they describe the competition for the course as "fierce", deliberately keeping the number of students down in order to preserve a high staff to student ratio. As part of the application process he had to produce a research proposal and a piece of critical writing as his degree is in an unrelated subject (Law). He worked very hard on all this and we're extremely proud of him.

Since we now have a clear plan for our retirement and are pretty sure we have (more or less) enough to do what we want to be able to do, we have decided to gift £17,500 of our ISA savings to each of our sons as an "Opportunities Fund" to be used to allow them to do something they would otherwise not be able to do, hopefully to improve their lives permanently. This may (or may not) be directly tied to job prospects as personal satisfaction and development comes in many forms. :-) The eldest is using his to go back to University and the youngest is leaving his with us for the time being until he has a good use for it.

In addition to gifting the £17,500 we have also said that my eldest son can live rent free in our studio flat for the year. Our youngest son has already made use of the flat between his MA and PhD when he was doing some intern work and applying for funding. This is, in fact, why we bought the flat, as we only own a modest semi and having an adult son live at home can get a bit "cramped" if it goes on for any length of time. :-)

(btw I am painfully aware that my sons have both been given an educational advantage by having parents who have been able to afford to supplement student loans, internships, housing and life in general. I am ideologically opposed to the idea that education is ever something that should be allowed to exclude people for financial reasons and would never have sent them to private school, but parents these days seem increasing sucked into supporting their kids through further education if they can. As this becomes the norm surely the kids of those who cannot afford to help become actively disadvantaged? One for my conscience (and vote)).

Having now got the offer of a place we have been thinking in more depth about accommodation and my son has decided that he would rather live on campus if possible. Although our studio flat is only about 30 mins by road from the University he doesn't drive and there is only one bus an hour and none after 6.30 in the evening. He had been thinking about getting a bike as there is a cycle route for some of the way but travelling home late in winter on poorly lit roads was a bit of a worry. In addition it would be good for him to be in the thick of things and we wouldn't have to give our tenant notice (something I'm loath to do as she has been very good and is obviously happy where she is despite only signing up for 6 months initially).

However the student accommodation prices came as a bit of a shock. As a postgraduate needing a 51 week rental the full range of choice of halls was not available to him and he's basically confined to a cheaper option of £5,800 (shared bathroom) and £6,700 (en suite).

Comparing these costs to the income/costs associated with him living in our studio flat works out like this:

• After tax income from rental (estimated as it depends if any further repairs are required and\or the tenant gives notice): £3,700
• Estimated utilities (electricity, broadband, water) to pay if in flat - currently covered by tenant: £1,000
• Council Tax (currently covered by tenant): £1,200

Total: £5,900

So, taking into account the travelling costs associated with living in the flat and the fact that living on campus entitles you to 10% discount at food outlets and bars on site means that, although the university accommodation seems mighty expensive when compared to our studio flat, it would actually be more or less cost neutral for my son to live there.

This calculation was quite interesting from another point of view. If we are getting a profit of around £3,500 pa on our studio flat and it works out that it costs our son just about the same to live in what used to be called University "Halls", surely the University is raking in huge profits at these kind of prices. Their overheads must be proportionally much smaller given the scale of their service. They have a captive rental "audience" and can control their void periods (the rooms are let out for conferences and visitors during the vacations) and service the flats using their own maintenance staff.

It all seems a bit scandalous except for the fact that we have to recognise that this is yet another reflection of the ongoing trend towards the commercialisation of education. Government funding for universities has been reduced so they have to make money somewhere. What then happens is that cheap accommodation for the students without parents with the wherewithal to help becomes scarce and the poorer students are forced out into the private sector with all its attendant stresses and difficulties, things that young people leaving home for the first time do not always have the skills to manage.

Personally I'd rather pay a bit more tax, fund the universities properly so they can provide affordable accommodation and remove tuition fees for UK students, put kids back on their own two feet with a fair and adequate grant system and make sure that further education is only seen as attractive for the right reasons by the right people. Somehow, though, this all seems to be moving further and further out of reach.

What is a Fair Rent Increase?

When we paid a letting agent to advertise and manage our studio flat rental we were guided by their advice on how much rent to charge. During the 3 years they were acting for us we put up the rent once, between tenants, by £20 per month (about 4.5%). Last time we needed a new tenant we used OpenRent, and put the asking price up by another £10 per month. The price we now charge is exactly the same as the median rental value given for the address on Zoopla (I'm not quite sure how this works though - is it a recommendation or just a quotation of what is actually being paid?).

We were overwhelmed by the number of responses we got very quickly after advertising and had several offers of a higher rent from people who wanted to jump the queue. To be honest we found this part of the process quite stressful and it made us realise that part of what you pay the letting agent for is to do the "dirty" work and get you the best price. It also made us realise that we wanted to do things fairly, treat the prospective tenants properly and keep our word when we had accepted an offer . We could certainly have got more money if we had played people off against each other.

My son lives in a very similar studio rental in London for which he pays £900 per month which is exactly double the rent we charge. He is currently negotiating to extend his contract for another year. The letting agent told him yesterday that they propose to increase the rent by over 10% to £1,000. He has gone back to them and said he is prepared to pay an extra £55, but if this is not accepted he will look elsewhere. I think he has done the right thing. He could stretch himself (very thinly) and pay the extra 10% but it simply doesn't feel right that a landlord who has had his rent on the dot from a very reliable tenant should "take advantage" and attempt to get every last penny out of him that he can. It feels like a bit of a kick in the teeth.

I know that rental prices are determined by market forces but I also believe landlords have a responsibility to be fair, see their tenants as individuals, not just commodities and appreciate the fact that someone who they have relationship with (because that is what a landlord/tenant interaction is) is not going to be encouraged to stick to their part of the bargain with good grace if they feel that the landlord simply sees them as a "cash cow". My son's landlord has always been friendly, has given him home made wine and chats with him whenever they meet on the stairs. When he talked with him in person about extending the contract earlier in the week there was no mention of a rent increase. There is no doubt that the letting agent is responsible for advising him that he could squeeze more out of the rental if he tried (after all he gets his cut). My son does not object to paying a bit more, he understands that the landlord needs to make money, it is the steep hike that is the problem.

Should there be some kind of rules about how much the rent on a short-term tenancy can rise? What are the responsibilities of landlords in all this? Having seen the situation from both sides I believe that the sooner we have less people using bad letting agents the better, as re-introducing the personal touch into the situation is far more likely to produce a civilized settlement between the two parties. Unfortunately not all tenants are reliable and landlord protection is definitely needed, but too much reliance on third parties who have a very "cold" and one-faceted business model regarding rentals means there is a strong bias against the tenant.

In a similar way that vegetarians say you should only eat meat if you are prepared to kill the animal yourself, maybe you should only put up the rent by an amount you would be happy to look the tenant in the eye and negotiate yourself. Business needs the personal touch :-)

Talking to the Taxman about Rental Income

Getting the tax sorted on our studio flat rental has always been a real pain. Don't get me wrong, I have no problem with paying what I owe, especially on rental income as it's not even earned, but I do object to the waste of time trying to find out what we need to do and when we need to do it. Especially as this seems to depend on the personal viewpoint of the officer on the other end of the phone, rather than a properly defined process.

Because our income from the flat is a fairly small amount and we split it between the two of us, we are below the threshold for needing to fill in a self assessment form (£10,000 net pre deductions and/or £2,500 net after allowable deductions). This is good news on one hand as we don't have to worry about the forms, but bad from another as sometimes (depending on the tax officer we happen to speak to that year) we end up having to do the work of supplying all the documentation anyway, along with an accompanying letter. This takes more time than filling in the form would have done and has been known to generate months of letters back and forth as they ask supplementary questions, eventually deciding we don't owe them anything anyway.

Up until this year that is. We paid the mortgage off last December and so no longer have the mortgage interest as an expense to offset against the tax. In tax year 2014/15 we are actually making a profit! Along with the fact that our letting agent expenses have shrunk enormously this year and we have gained control of the whole process, this means that I finally feel that the flat is a reliable asset in our income strategy. It is a very good feeling.

We phoned up the tax office this week and gave our estimates for how much profit we think we will make this year having offset the allowable expenses (letting fees, service charge, 10% wear and tear and the costs for the maintenance we've carried out). We were both lucky and got through to officers who were prepared to take the figures over the phone and simply adjust our PAYE codes so the job was done there and then.
Fingers crossed for next year.

Letting Alone (with the help of OpenRent)

Our first DIY tenant moves in today and I'm amazed at how quickly we found someone and how easy it all was.

A little while ago I wrote about how much of our very modest rental income was seeping away into the coffers of the high street letting agent we were paying to do a (not very good job) of managing our rental. When our tenant recently gave notice to quit I took the opportunity to research online letting agents and learn about what was involved in using one. I was amazed at the difference in prices. (My previous post gives the figures.) As my husband is now semi-retired and I only work 4 days a week we have more time to spare so we decided to give it a go, do the work ourselves and terminated the contract with our existing agents.

It did feel a little scary at first as the letting arena is full of legal requirements and the whole process of finding a tenant, taking references and lodging a deposit was something we had previously left up to the agent but I can honestly say that OpenRent made it very easy.

Following registration the website guides you through every stage. The interface is very clean and uncluttered, and the language used is basic English without any unnecessary legal jargon. You can contact them via phone, chat and mail and the couple of times that we got in touch the responses were prompt and helpful. But for the most part we didn't need any individual help from them as the portal did all the hard work of telling us what was happening next and sending us automated mails and texts reporting on progress. Whoever designed the site did an excellent job, the workflow behind it is very efficient, seems to work effortlessly and is focused on keeping the customer informed at every stage. Very impressive.

Our advert (including pictures) was up on Zoopla and Gumtree within several hours and we started getting automated requests for viewings the next morning. This part of the process was a little tricky as we had so many requests so quickly that if it hadn't been for the portal we could have easily got things mixed up. OpenRent do not give out your contact details, so potential tenants make all their enquiries via the site, the enquiries are then recorded on the  "Your Lettings" bit of the site and also passed onto you via text and email. This means that you always have a clear record of who got in touch, the time and date they did so and their e-mail and phone number so that you can get back to them.

We had 10 viewing requests in 3 days but actually ended up accepting an offer from the first (and only) person who we showed round the flat. Once a tenant makes an offer and you accept it OpenRent suspend your advert and the process of referencing begins. You have the choice of "Quick" (24 hour, credit check plus CC ) or "Full" referencing (3 - 5 working days, includes employer and last landlord reference). We went for the full and sat back and waited whilst Openrent did all the work. Admittedly this did actually take 6 working days because the previous landlord needed chasing but once the references were in we were mailed a full report which included the advice to accept and a button to do so. (There is, of course, also the option to reject).

Three hours later the contract had been drawn up according to our instructions and agreed with the tenant, signed by both parties, the deposit lodged and our bank account details taken so that the first month's rent could be paid. The whole process knocked our previous experiences of waiting for phone calls from the letting agents and posting contracts back and forth into a cocked hat.

I know that a lot of the hard work of being a landlord comes after the tenant has been found and that managing our own property will not all be as simple and straightforward as finding our first tenant has been, but at least we now know that this part of it can be made a lot simpler (and cheaper) than it has been in the past. If anyone is thinking of giving it a go I would recommend OpenRent's RentNow service without hesitation.

Going It Alone

We own a small studio flat which we bought for my son to live in during a gap year in his studies. We have been renting it out via an agent for the past 4 years or so and have now paid off the mortgage so are finally fully benefiting from the income. (An extra expense we had a couple of years ago was having to buy a lease extension which cost over £10,000 - but that's one for another post).

For the most part we've had good tenants, one of whom stayed 2 years which was great (no void periods and none of the expenses attached to finding a new tenant), but we have had a couple of less than perfect ones, one of whom continually complained about tiny maintenance issues (loose screw in window catch etc.) and one who got himself deported to South Africa on New Year's Eve owing 2 months rent.

However, because we pay 12% for a fully managed service, the agents sorted out any issues and we just paid the bills (which, to be honest, have seemed ridiculously high at times for things like minor repairs and cleaning). In other words, up until now we have been taking the "our time is more important than our money" stance as far as the flat goes.

But the current tenant has just given 2 months' notice and this has prompted me to have another think about this strategy, mainly because I came across the OpenRent website. The difference in cost between what we pay and how much they charge is quite substantial.

What we're paying: - 

• Initial charges: (ie advertising, contract, deposit registration, references, rent collection) - £395.
• Ongoing Charges: (Conducting viewings, Organising any repairs, ongoing rent collection, meter readings etc) - 12% + VAT

What our current agent offered when I told them we were thinking of using OpenRent:

• Initial Charges:- £295 +VAT
• Ongoing Charges - 10%

What we would pay with OpenRent :-

• Initial Charges: £49
• Ongoing Charges: Nil

In cash terms this means that by using OpenRent and DIYing we would be saving at least £1000 per year. (All other things being equal of course - there is the danger that the property won't go as quickly with OpenRent due to them being an online only service, but I think that's a smallish risk - surely a fair number of people use Zoopla and RightMove? and the flat is in a great area. On top of that we have had empty weeks with our current agent anyway so I think it's worth a try).

Is this saving worth the work? I think so. It means £1000 a year (less any extra tax that's due) that could be going straight into our ISAs and even if we don't strictly speaking "need" the money now, we certainly will once I leave work. I think it's worth giving it a go and learning to deal with what's involved sooner rather than later.

I'll be spending the weekend reading up on landlord's responsibilities and making sure we know how to cover all bases before I take the plunge and give our agent the required 3 months' notice to quit. It's still a little scary though :-)