Why You Should Consider Investing In The ‘Boutique’ Rent A Room Business
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Why You Should Consider Investing In The ‘Boutique’ Rent A Room Business

Background, Buy To Let, Investment

Speak to as many landlords and letting agents as I do and you’ll soon find that, in many places, there’s a huge unsatisfied demand for renting good quality rooms by the week. For want of a better name (if you can think of one let me know!) this is best thought of as the ‘boutique’ rent a room business. If you’re an existing or would be property investor I really do feel this is an area you should certainly have a think about investing in.

Boutique room rental is a relatively new – and potentially very exciting – niche within the property letting market. Broadly it means letting out individual rooms in shared properties to a higher end tenant market, rather than the market to who this type of accommodation is usually targeted, ie. students or housing benefit tenants.

There are some sound reasons to consider getting involved in the boutique room rental business. Partly, it seems to be a growing market which todate is still relatively underserved. Secondly, it stacks up better financially and could potentially be very lucrative to boot.

As a general trend, and as many letting agents will tell you, there is increasing demand from professional tenants for good quality shared accommodation. Fast rising living costs (and not so fast rising salaries) mean more tenants are willing to consider renting a room rather than an entire property. In addition, room rental rates are usually fully inclusive and make budgeting easier for tenants. There’s a social aspect to all this too, with plenty of people, young people particularly, who prefer to live in a roomy, well-specced shared house than their own small flat.

Room rental also offers tenants convenience and flexibility. It is particularly appealing to tenants who might require Monday-Friday only accommodation. It is often let on a monthly or weekly rental basis, rather than a six or 12 month AST.

Here are some tips if you are interested in getting involved in the boutique room rental market:

* Target a particular target market, not just anyone and everyone. This will make choosing a property and finding tenants easier. Boutique room rentals normally target a higher-end market, ie. not LHA tenants, or the mainsteam student market.

Professions where people traditionally move around include academic staff, medical staff, IT contractors, postgraduate students, newly graduated professionals, contractors in construction and engineering.

* Identify suitable locations. Not every area has a demand for boutique room accommodation. Look at what large local employers there might be. Are there any upcoming major construction contracts, eg. HS2, that might boost demand for rooms.

* Check out relevant regulations with the local authority. Your accommodation might (but not necessarily) qualify as a HMO and be subject to HMO regulations …. or be in a special or additional licensing area. In some instances you might need planning permission.

But note, by and large areas subject to special or additional licensing will already have a large number of rooms rentals and so might not be suitable for boutique room rentals anyway. Instead, look at slightly better quality areas away from traditional HMO areas – it may be a cliché, but coffee shops and fashionable bars point the way.

* Select a suitable property. You could consider converting a property you already own, purchasing a new one, doing a conversion or subject to agreement with another property owner setting up a ‘rent to rent’ project.

* Fit out and equip your property, to appeal to the kind of higher-end shared accommodation tenant you want. Ensuite rooms are much preferred for this market, as is wi-fi and a well-equipped good quality kitchen. In terms of furnishings and décor think of what you’d expect from a 3* or even 4* hotel.

* Promoting your boutique room rentals. Some letting agents operate in this market, but most currently do not. There are a growing number of room rental portals which you can use to self-promote your accommodation, for example Spareroom.co.uk. And of course the fast growing AirBNB.

Alternatively you can also advertise this sort of accommodation using online an offline advertising publications, or contact large local employers who might suggest your accommodation to new and/or temporary employees.

* Set up a system for house management. As with any shared property your accommodation will need more careful management than accommodation let to a single tenant – and will be a statutory requirement if your property is a HMO. Decide whether you will manage your property yourself, or appoint a house manager.

The pros and cons of boutique rent a room accommodation

The main cons are the additional set up and running costs to equip boutique accommodation, and the additional management time and effort that may be needed.

The main pros are however, as you might expect, the opportunity to generate higher yields than for property let on a conventional monthly, single family let. Indeed, the possible returns and yields can be very impressive indeed – and I’d suggest you try a ‘paper exercise’ to see how the numbers could stack up for you.

Areas and properties vary considerably of course. But a three bedroomed property let to a single family at £650 pcm could potentially be let as three rooms at £90 each pw or the equivalent of £1,080 pcm. A five bedroomed property let to a single family at £1,200 pcm could potentially be let as six rooms, by utilising a reception room and remodelling the the accommodation, at the same weekly rent, generating £2,160 pcm. Potential gross yields show a similarly impressive uplift.

As boutique accommodation is always furnished and usually short term there may even be an opportunity for it to qualify as holiday accommodation and benefit from a more favourable tax allowance regime than for standard lets – subject to any future changes to this. As always, speak to your accountant about the most favourable way to buy and run any property investment.

Longer term, operating boutique accommodation allows landlords and investors to continue to invest in the property market at a viable yield and benefit from future capital appreciation too. Indeed, up-and-running shared accommodation could potentially be sold as a business (going concern) and achieve a higher sale price than the capital value of the property alone – something property let on a single tenancy can’t offer.

Bottom line. Increasing financial and regulatory pressure on investors and landlords over the last year have prompted some to consider exiting the buy to let market. But it is also prompting the hardier souls to look at alternative ways of making money from buy to let other than the standard buy to let format. One opportunity landlords and property investors might consider is the so-called boutique rent a room business.

Property Insider Editorial by Mark Hempshell, Editor in Chief 

 

 

 

 

 

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