Everything you need to know about investing in student accommodation
Student accommodation is in high demand, and high returns and tenancy rates make investment a tempting proposition. Investing in student property can sometimes be a risky business however, so how do you get involved in this lucrative market?
Keep reading to learn a few of the key things we share with all our investors in the Premier Property community to think about before investing in student property.
Here are some quick tips to get you started:
Why invest in student property?
As a growing market with no sign of slowing down, student accommodation is rife with opportunities for smart investors and can make a great addition to any portfolio!
Student properties have high tenancy rates compared to other buy-to-let properties, and it is usually fairly easy to find tenants each year.
With returns often between 9% and 15%, this kind of investment offers higher returns than other forms of buy-to-let property.
A PBSA is a Purpose-Built Student Accommodation, often in the form of a pod or ‘cluster’ apartments in halls of residence. Student pods often go on the market off-plan and are usually managed for you. Sounds like an easy, hands-off investment right?
With guaranteed incomes on offer of up to 15% return over the first few years, investing in pods can look like a no-brainer, but remember, if a deal looks too good to be true – it probably is!
In many cases, you will pay a steep price upfront, which is in fact being used to subsidise that fantastic-sounding guaranteed income. Make sure you know the real market value of the property, when the guaranteed income ends you don’t want to discover you’ve been getting paid with your own money!
Here are few more factors to think about:
- High degree of development and management risk. Do your research on everybody involved in the deal, you aren’t going to have the same level of control that you would have over other investments.
- Unpopular with lenders. Student pods don’t really appeal to anyone except students, so lenders can be worried about long-term tenancy rates and resale value.
Investing in clusters of apartments, particularly those within halls of residence, offers more realistic and reliable returns, but they can be hard to get your hands on as they are usually owned by university institutions.
If you spot an opportunity to acquire a property like this, don’t waste any time! But that doesn’t mean you shouldn’t still do all of your due diligence on the property.
A House in Multiple Occupancy (HMO) means each bedroom in the property is let individually to tenants, which can give you great rental yields.
In some areas councils are trying to cut back on the number of HMO licenses they give out, so it pays to look into this before making an investment!
This is usually done via Article 4 directions, which you can read about here:
There are a lot of changes coming to HMO legislation on October 1st, don’t get caught out! Archie Maddan and I break down the changes for you in this video:
Choosing a student property
So how do you know if there is demand for student accommodation?
Simple – just look at recent student numbers at the university and then look into what is available. While sites like Right Move and Zoopla are still useful here, you can also learn a lot from:
- Student accommodation sites like Student.com.
- Student lettings agents.
- Student Unions.
- The University itself.
You always want to take advantage of government funding where it is available. To maximise your funding here look for Universities known for:
- Overseas students.
Demand for student accommodation in London is massive, so if you are looking for a smaller initial investment you will want to look outside the capital.
As most students do not own a car, arguably the most important factor when choosing a student property is its location. Students will pay a lot more in rent for accommodation within 20 minutes’ walk of the university.
Many students are living away from home for the first time, so the safety of an area is also usually very important to them. When looking at a location, ask yourself:
Would I want my kids living here?
No? You might have a tough time getting tenants in that property.
If you have any students in your family you will know how critical the Internet connection can be for them.
- An inclusive or subsidised Internet package. Having their internet bill included in the rent is one less thing for your tenants to think about, and a good connection is a selling point!
- Speed. A good rule of thumb is at least 10 Mb/s. DSL Checker is an excellent resource for fact-checking providers’ claims about their connection speeds.
- Reliability. Simply Googling Internet reliability in your location should tell you enough here. If you find dozens of complaints of outages or poor speed, save yourself the headache as these issues can go on for years.
It is smart to consider the Internet connection even if your tenants will be arranging the package themselves.
When it comes to the property itself, try to focus the search on properties with large kitchen and lounge areas as these appeal the most to students.
As a general rule, students don’t care about gardens - so don’t invest in one. They can be costly to maintain and won’t add much value.
Managing a student property
The basics of managing a student property are the same as any other property, but there are a few extra things to think about here.
Make sure the property is clean, well-maintained and has robust furniture and fittings. Students are not known for taking good care of their accommodation!
You will probably be re-decorating on a pretty regular basis so keep it simple and don’t splash out.
On that note, get landlord’s insurance with good cover for damages. Although the parents or guardians of students usually make reliable guarantors, make sure the insurance also covers lost rent.
When it comes to providing kitchen appliances, anything that saves your tenants time is a major selling point. The big three every student looks for are:
- Washing machine.
You definitely want to provide all three if you have the space.
Student lettings agents are where the most tenants can be found. With a lettings agent you get the assurance of referenced and credit-checked tenants, and it saves you the trouble of finding tenants every year.
Advertise all year round. It used to be that student landlords could take advantage of inflated rent prices during the ‘Christmas rush’, but more and more students are disregarding their University’s advice to find a house before Christmas in search of a better deal.
Looking for more tips on furnishing your property? Have a read of my recent article on adding value to your property investments.