A guide on single-let properties

by | Nov 10, 2022

Introduction

Like all rental properties, they are significant investments. Buying a property like this requires a landlord to do their research to avoid common mistakes when investing and know the legislation in detail so they have an advantage.

Single lets, unlike HMOs, are seen as not having the same high return on rental yield, nonetheless, the single tenancy in place makes them easy to manage. Read on to find out all you need to know when managing single lets and how to manage one to produce profit and avoid headaches.

What is the meaning of a single-let property?

In property, whenever an investor buys a property to produce profit, they have to let it out to a tenant. In the case of single-lets, all these means is the property is rented to one tenant.

This doesn’t necessarily have to mean it is one person. It can be one household or one person paying the rent who is responsible for all costs. But the distinction is that only one tenancy agreement is signed.

Is a single-let occupancy the same thing?

Most of the time, if you hear the term “a single-let occupancy” this is just another way of referring to a single-let property. Nonetheless, there is something called a ’permitted occupier’ too.

A permitted occupier is someone that hasn’t signed a tenancy agreement and is not a tenant and doesn’t pay rent but they have permission to stay at the property from the landlord. For example, a spouse of the person who has signed the tenancy agreement or the children of the tenant. 

This does not include anyone subletting the property as they would have signed a new agreement that includes them as part of the tenancy. This is because permitted occupiers don’t have to pay rent. Nonetheless, It is still vital their names are written down on the tenancy agreement.

What’s the difference between a HMO and a single-let?

A HMO stands for a House of Multiple Occupancy so there are more than two tenants in one house who aren’t in the same household. These types of properties have to have special HMO licensing as well as needing additional safety regulations in some cases.

On top of this, the exact regulations for what a HMO is and how a HMO should be managed differs from borough to borough. In general, HMOs are more complex in their requirements but some landlords who invest in property prefer them to single-lets because of the property’s ability to have a higher rental yield.

In general, HMOs are harder to source, set up and manage but are more profitable, single-lets are much simpler but there is a tradeoff as the rental yield is reduced due to only one tenant paying rent.

A living room in a single-let property

Are single-let properties good investments?

Whether a single-let property is a good investment or not is up to the goal of the investor. There are factors such as the investor’s tolerance for risk, what kind of return they are expected and how involved they want to be in the management of their property.

As an example, a landlord who is very involved in the process of managing the property is able to reduce the costs from hiring a property manager or a letting agent for example is able to get a higher return on a single-let property.

On the other hand, an investor who wants to buy a property, set it up and leave it and have the rest of the property managed by a property manager is far more likely to be happy with a lower rental yield.

Ultimately, the true test of whether a single-let property is a good investment is by looking at the rental yield of the property or the ROCI (return on capital invested) of the property. A respectable figure for rental yield on a single let is anywhere between 3% – 9%. 

However, recent research here shows that even finding the best rental yields cannot be enough to gain approval for a mortgage in the economic climate of 2022.

However, this strictly depends on the value of the property too because a property that is lower value and has a lower purchasing cost must have a higher rental yield for the landlord to make their money back and produce a beneficial profit. A property may be great for a landlord with lower rental yields if the property could benefit from justifiable capital appreciation.

HMO vs single-lets, which one is better?

When taking out a mortgage for investment or perhaps buying a property through other types of finance, a landlord should consider letting their property out to one single tenant or having multiple tenancies under one home.

The method of having homes with multiple occupancies is more of a recent method than single lets as HMOs only came into effect in 2000. There used to be co-living and shared homes beforehand but it is not until recently that extensive safety and building regulations were put in place.

Below are the pros and cons so you can weigh up a single occupancy vs. a HMO.

Pros of single-lets

First of all, single-let properties are easier to set up. If you bought a property or a plot of land and are looking to make the building compliant for the letting type of a single-let, this process will be a lot easier than if you were to try and form a HMO.

It can be as simple as making sure there is a gas safety certificate, energy performance certificate and an electrical installation condition report for the whole of the property before the property is ready to house new tenants.

Additionally, getting approved for a buy-to-let mortgage is simpler than gaining approval for a HMO. This is due to lenders viewing HMO investments as riskier. It is common for landlords to not gain approval for a HMO mortgage until they are more experienced and have at least one single let to prove their competency in managing properties.

A kitchen in a single-let property

However, this is not always the case and there may be lenders who are willing to lend money to first-time investors who wish to buy a HMO. You just have to shop around and make sure the rest of your property documents in the mortgage application (such as your credit score) are as good as you can get them to prove to a lender the investment is low risk.

Furthermore, single-let properties are advantageous as they often attract families rather than single tenants. Families are far more likely to take care of the property and stay there for longer as children tend to go to schools and stay there for long periods of time. This is a great way to avoid DSS tenants who may not have

Finally, if you choose to buy a single-let property you will have much lower upfront costs. This includes costs such as paying a contractor to build a new room or raising the heights of ceilings to meet building regulations. The property just has to be in good condition and have relevant safety checks for tenants to move in.

Cons of single-lets

The biggest disadvantage of single-lets from an investor’s perspective is the low rental yields associated with single-let properties. Because there is only one tenancy agreement you can sign per property, this results in the tenant not paying as much rent to the landlord when compared to multiple tenants renting each room of a property

A negative thing about a single-let property is the possibility of a void period in the tenancy of the house which can mean the property goes from making enough to pay off the mortgage, the property bills and producing some profit to zero income as a tenant moves out.

This isn’t the case with a HMO because the other tenancies in a property can cover the costs while there is an empty room in the property. In a single let, the failure to fill the property with a tenant for a long period of time can therefore be quite disastrous for a landlord to make a profit and keep paying their mortgage repayments.

This is why it’s important to have stable tenants you do sufficient tenancy referencing on before you welcome them to your single-let property. This way you’re better able to predict when they will move out and they’ll be more likely to give you a notice in advance of when it might be the case.

Why invest in single-lets if they have a lower rental yield?

The main reasons for doing this are simple for investors. Single-let properties are:

  • Easier to set up
  • Easier to find a mortgage for
  • Easier to manage
  • Attract better quality tenants

These reasons all appeal to the sceptical, hands-off and perhaps inexperienced investor who wants to invest without the headache of a HMO.

A single-let property that was simple to set up

What are the planning regulations for single-let properties?

Unlike HMOs, single-let properties are far less complicated. Having said this, there are still regulations that have to be followed and these regulations have consequences just as severe as not complying with regulations in a HMO.

Safety regulations for single-lets

There are a few safety regulations you have to make sure are in place before you can sign a tenant under an assured tenancy agreement. Without these things in place or if any certificates expire, this could mean you aren’t following the landlord and tenants act of 1954 and lose your rights as a landlord. For more on this click here.

EICR and electrical certificates

Before you rent the single let out to tenants, hiring a qualified electrician to conduct an EICR every 5 years is mandatory to make sure you are following regulations. This could mean you need to conduct repairs so the report is passed as satisfactory. 

Gas safety certificates

Gas safety certificates, sometimes called CP12, are checks that must be done to a property every single year by a gas engineer.

Energy performance certificates

A qualified energy performance assessor must conduct the checks for and issue an EPC certificate. In this test, the property will be assessed for its energy efficiency. This can include looking at the insulation levels, energy-saving light bulbs and heat sources of the premises.

Fire safety

To pass the regulations for fire safety in a single-let, landlords must have a smoke alarm on every floor that is working and loud enough (75 decibels). Also, they must provide a carbon monoxide alarm for any non-conventional heat sources such as a coal fire.

Finance and insurance for single-lets

Currently, singlet properties are financed like any other home using a mortgage. For investors, this is most likely going to be an interest-only fixed-rate buy-to-let mortgage but it may also be a combined mortgage too.

Managing a single-let

Managing a single-let property can be done by the landlord of the property where you have all the important information and direct contact with the tenant. However, they can also be managed by a property manager who may also work with a letting agent on behalf of the landlord to manage the property.

In general, the property manager will take a commission from the rental income of the property and will manage multiple properties at the same time.

Use class for single-lets

Currently, the use class of a single-let residential property is class C3. This class refers to “dwelling houses”

        A single let property in use class C3

        To conclude

        In general, single-let properties are seen as a simpler way to start investing in property. Popular among less experienced landlords who don’t have the knowledge or experience or risk tolerance to invest in a HMO property for example.

        They are a lot easier to set up but they still come with certain regulations and risks too that you have to be aware of as an investor. Do your due diligence as you would with any property and understand there are always risks that come with a property that is out of your control.