It’s that time of year when many parents and landlords consider investing in a student let. Some in order to provide a roof over their offspring’s head during their time at Uni. Others because many commentators and property experts have identified student lets as a growth market.
Should you invest and then what in and where? I take a look.
The traditional type of student investment has been a house; which is then let to a bunch of students on the basis of a House in Multiple Occupation.
Increasingly, specialist companies are providing targeted investment schemes aimed at luring in property investors and allowing them to purchase an off the peg investment in student accommodation. Are there any benefits of letting to student tenants?
The pluses of renting to students:
Rents are higher – rental yields for student housing which are HMOs are often higher for student housing than for a standard buy-to-let. You are looking for a minimum of 8-10% depending on the area.
Student numbers have risen – the UK’s Universities and Colleges Admissions Service (UCAS) said there were about 700,000 university applications in 2010, a rise of 34 per cent over the previous five years providing the basis for rising demand for property in many student cities.
Minimal voids – It’s often possible to let a student property several months in advance for a whole year, minimising voids in more uncertain rental markets.
Hassle free investments – investment in a private hall means that on site management teams will handle all maintenance and management issues leaving the landlord to just pick up the management charges and ground rent.
Resilient sector – student property continues to be one of the best performing property sectors against the fall off in property values.
More hassle – my experience with student lets that you manage yourself is that they are certainly more hassle than letting to a single professional. Maintenance and managing the tenancies will be more work. Also, there is the added complication of letting to foreign students who could disappear off to some far off land at the drop of hand giving you no chance of getting your rent back unless you have a UK guarantor.
Come on don’t you remember being a student….and playing the game of bate the ‘capitalist pig landlord’!
Limited after sale market – if you look to invest in a specialist student block then to realise your investment you will have to sell to another property investor. A limited after sale market is likely to depress capital appreciation,
Finance – BTL finance for a specialist investment is limited meaning the choice and cost will be higher than a standard buy-to-let.
Student numbers peaked – the increasing fees and poor job prospects may deter students from going on to do a degree meaning that the risk is that student numbers may have now peaked.
Types of student investment properties.
There is a range of student investment properties targeted by investors. Traditionally, it has been a house; which the parents as landlord can let out to their offspring and their college friends. From a parents’ point of view, the arrangement is ideal as it means that they are not shelling out rent to house their student offspring. The advantage with this type of investment is that it’s still potentially saleable to an owner occupier once you have finished letting to students. Remember that you can split the rent therfore saving you tax.
However, investors need to be careful where they buy; as some areas have become effectively student ghettos where only students want to live. This limits resale to landlords thereby limiting the market and restricting resale values.
It is now possible to buy purpose built student accommodation.
A brief search using Google will highlight numerous opportunities, such as this.
Be careful however of some of these off plan student investments being marketing by some companies. This recent post relating to one highlights that there are some dubious companies offering very attractive returns for investing in student accommodation. The discussion on one overseas operator highlights some of the potential pitfalls. Namely that an off plan development might simply not happen.
As well as purpose built units some ‘well heeled’ parents are able to buy ‘high end’ flats or small properties for their kids to live in whilst studying. Whilst, this means that rental returns aren’t as likely to be as high doing this, the upside on capital appreciation as those parents who have brought into prime London property has found is greater.
Where to buy?
Knight Frank have recently conducted a study into 20 selected towns to invest in purpose built student accommodation taking into account student intake demand from international students and the existing supply.
Not unsurprisingly there was a southern bias with London and Kingston being in the top 3. Both Edinburgh and St. Andrews were seen as a good bet, with Durham being the top ranking northern town as the 6th most popular.
One key factor in choosing a place to buy is the average rental levels in relation to capital costs.
Should I buy?
Personally, I think potential student landlords should think long and hard before investing. You may end up saving a few thousand pounds on paying your children’s rent but if capital values don’t increase and you buy on the basis of an interest only mortgage then you may end up after the 3 years with a property worth no more or even less than you paid for it and miles away from where you lived. Not necessarily a buy-to-let dream. Perhaps in the current climate it might be better leaving the job to professional landlords and you buy a place closer to home and let it to a nice clean professional couple.
More essential links on being a student landlord: