What is the Best Tenant Profile for a Buy-to-Let? A Guide
So, what is the best tenant profile or the best types of tenant, for a buy-to-let?
That's the question, that we have been asked today, for our Question Of The Day.
And it is quite an interesting one, actually, because we've had a mix of tenant profiles, across the years, that I've been investing in property, since 2005.
We've worked with housing benefit tenants, students, social housing, professionals, across a range of strategies, as well.
So, we've done mainstream buy-to-let, through to HMOs; a whole host of others.
When it comes down to tenant type, I've found that it's not one type of tenant, that's going to be the best, beating, hands-down, every other kind of tenant profile, for different criteria or different categories.
What we have found is needed, is a matrix that we can use to compare our property types and tenant types, to try and really understand which features, as of right now, for our portfolio and our plans for our own portfolio, matches what we are looking to achieve.
And that covers everything from professional tenants, through to serviced accommodation and all of the different tenant profiles, in between.
As of right now, our preferred tenant-type, for our strategy, in terms of the next properties, we are going to be adding to our portfolio - it tends towards professional tenants.
And there are a couple of reasons for that, which are relevant, to this snapshot in time, for us, personally.
But there are, certainly, other things to consider, for your own portfolio.
I'll go through some context, as to what we are looking for, in professional tenants and why we think they are, currently, favourable, for ourselves.
There are two, main reasons but a third plays into this, as well.
The first one is access to finance.
Now, I'm not a mortgage broker, so, I can't give financial advice. That's for somebody, such as a qualified broker or bank, that you would need to speak to, to really understand that the lending landscape.
But when it comes to financing, for our own portfolio, what we have found, is that, when you are raising finance on properties, for example, with social housing, is much more difficult than with professional housing (professional tenants).
And also, it is more difficult, than if you were raising finance for student tenants, as well.
Student, professional and even council tenants, to an extent.
We have found funding for those types of properties to be a bit more mainstream and a little bit more cost-effective. Whereas, social housing, as a comparison, tends to be more expensive.
There are limited lenders and limited options, in terms of what products are out there.
And sometimes, it might mean going to commercial finance, which is more expensive or, at least, has been more expensive, for us, in the past.
So, our preferences, tend to involve looking at more mainstream strategies and working with professional tenants, are one of those. As I mentioned, students can also be another one of those.
The second reason is management.
When we are buying properties, now, we use letting agents, to manage the properties, wholly.
We've done self-management of our properties in the past and it's very difficult, very time-consuming and there is lots of legislation that's coming out, all of the time.
It makes sense to work with a professional, in that space; a professional letting agent, that has the experience and an understanding of the local market.
We've found doing this, really excels. It gets our properties filled quicker, it means we find the right type of tenants and it just removes that constant battle, to manage, maintain and run our properties.
If you are self-managing, that can be very time consuming and difficult.
So I, absolutely, recommend using a letting agent but I would also recommend that you use a letting agent that is experienced, in the niche, that you are looking to work in.
If that is student tenants, for example, then make sure you are working with a student-focussed letting agent, in that town or city.
For us, professional tenants, gives us more access to potential letting agents, in our areas. So, we've just got more choices, to choose from.
It's just our preference, again, to focus, in the current stage of our portfolio, on the professional market.
And then, the third reason, tends to be, the longevity of the tenant profile.
There are other tenant profiles that have very good longevity.
Housing benefit tenants, we have found, have been fantastic for longevity. We have had tenants in properties for many years, where they've been local to schools or local to family members.
They don't want to move.
They're happy and they want to stay where they are, currently, where they have contacts, friends and family.
And it's a great way to use, maybe, a two or a three-bedroom house, that is suitable as a long-term family-let, to see a great longevity.
Same for professional tenants.
We have found that, if we have the right type of location for a property, maybe it's even a city-centre apartment or possibly a two or a three-bedroom house, again, it can attract a fantastic, long-term tenant profile, if it is maintained and looked after, right.
This is because, when the location is such, that it is near local workplaces, amenities, schools, things like that, it can mean that you are going to attract a tenant, for a longer period of time.
Student tenants tend to be more cyclical but there are benefits to student tenants.
By being cyclical, you tend to get a turnover of tenants, possibly yearly, depending on the type of property and the location, the city or the town that it is in and the university it is attached to.
What you do have, though, is, very often, an oversupply of demand.
There can be lots of tenants, usually, looking for properties, in the same period of time.
If you have a good location or a good, quality property, letting it isn't an issue but you do have that turnover of tenants.
So again, making sure you have a good-quality, letting agent, in place, is very important, when it comes to student tenants.
We would still do student tenants, social housing property and housing benefit tenants.
We would look at the whole range of tenant profiles.
I don't have an issue with any particular tenant profile. We have that mix in our existing portfolio.
But what we also try and do is make sure we constantly rebalance our portfolio, over the years.
So, as of right now, our preferred tenant profile is professional tenants but that could change in twelve months time or two years time or five years time, depending on what our portfolio, makeup, looks like.
I hope that helps and that it gives you some context and maybe some things to consider with your tenant profile, for your buy-to-let.
And if you've got any questions, please feel free to ask; I'd be happy to help.
All the best! Bye.