Why buy-to-let investors are wrong to ignore student accommodation
Investment property opportunities come in all shapes and sizes. There is a diverse range of properties and property investment strategy to choose from. It makes it ideal for developing a diverse investment portfolio for all stages of the property and economic trend cycle. It’s an asset that targets the financial objectives of yield or growth equally well.
Take investment yield, for example. Today, it’s difficult to find investment assets that pay a decent income. There’s no value in putting your cash in the bank. The dividend yield on the FTSE 100 is a paltry 3.66%. If you buy an annuity, you’ll receive around 4%.
Investment property yields can be much higher. If you include the benefits of leveraging in property investment with an investment property management strategy, you could enjoy a yield of 5% or more. That’s market-beating passive income.
Here, we highlight eight benefits of investing in student accommodation – a sector of the UK property market that offers very attractive yields for income seekers.
1. Student numbers are soaring
Despite increasing tuition fees, there are more young people entering further education than ever. In 2015, record numbers of applicants had received for UK university places; a total of almost 600,000. The trend indicates that this number will continue to rise. In total, in 2015-16 2.28 million students were studying in higher education.
It is a huge pool of demand, and all of whom need accommodation.
2. Universities can’t keep up with the demand for accommodation
Traditionally, students would stay in halls of residence at the university in which they studied. But with the soaring demand, there simply aren’t enough rooms available on campus. Many universities now only allow first-year students to stay in their halls of residence. Even so, many first-year students won’t get a room.
Second-year students and beyond partner up with their friends and rent private accommodation.
3. Student accommodation is recession-proof
People don’t stop going to university during a recession. In fact, the opposite is probably true. When fewer jobs are available, school leavers are more likely to consider a course of study. So, student accommodation is recession-proof, providing a greater certainty of income for the buy-to-let investor.
4. Net yields are higher than many gross yields
Student accommodation pays a better yield than the run-of-the-mill buy-to-let investment property. It is because they are HMO investments (houses in multiple occupations). In a three-bed student apartment, you will receive three lots of rent.
So, you’re likely to receive a net yield that is as high as (or even higher than) a traditional buy-to-let property.
5. Purpose-built student accommodation is attractive
Purpose-built student accommodation provides all the benefits of living in halls of residence. For example, there are common rooms, Wi-Fi, and study areas. The best are only a few minutes’ walk from the university, and close to local nightlife, shops, and work opportunities.
If you invest in purpose-built student accommodation, you eliminate many of the disadvantages of HMO v BTL investment while retaining the benefits of higher yield and shorter void periods. With a good track record to back up the yields going forward, purpose built student accomodation that is already up and running gives investors certainty they're craving.
6. Rent is guaranteed
Here, I’m not talking about developer guarantees. Students are often considered to be difficult tenants because of the potential for rental default. But, I’ve always found that students are usually good payers. And if there ever is a problem, there’s the parental guarantor to call on. That’s the rent guarantee.
7. Your property investment is managed
Custom-built student accommodation usually includes property management. It may be provided by the university itself, or by the building administrators. You benefit from ‘boots-on-the ground’ investment management that is active and proactive.
8. Students could become long-term tenants
It takes several years to complete a degree, and students may also decide to continue their studies. If you keep them happy, they could be your tenant throughout their studies. This could be for between two and six years. It is tenant consistency which most landlords don’t have.
Summing up
For a beginner property investor, the dynamics of student accommodation provide a greater certainty of income. As a recap, a property investment in student accommodation benefits from the following:
- There is a large and growing student population
- Universities can’t keep pace with demand for accommodation
- Higher education is recession-proof
- Net yields which are often higher than traditional BTL gross yields
- Purpose-built student accommodation in which students want to live
- Parents act as rent guarantors
- Professional property management
- Students could become long-term tenants
To discuss how student accommodation could help you achieve your financial objectives, contact one of our team today +44 (0)207 923 6100.
Live with passion
Brett Alegre-Wood
