If you’re considering an investment in student accommodation, it’s easy to understand why. Statistics show that student rentals increased 2.8% between 2017 and 2018. With over 1.8 million full-time students studying in the UK, and universities unable to keep up with demand, it offers a great opportunity for the private market.
However, there are several different types of investment to consider. This guide will help explain the advantages and the pitfalls of investing to help get you started.
Different Types of Student Accommodation Investment
The nature of the market means there are several different investment options that you can consider, depending on your budget:
When you think of student accommodation, this is probably what you think of first. Shared houses or Houses of Multiple Occupancy (HMOs) offer a great investment opportunity as they require a small investment but can yield good profits. Typically larger properties, they can be broken down into several different rooms, leading to multiple rental incomes.
If you scour your local area for properties that might make a good student accommodation investment, then you’ll likely highlight several apartments. Similarly to shared houses, apartments allow for multiple occupancy, therefore reducing your risk. Though they are typically subject to a building service charge, you do avoid the maintenance costs of outdoor space.
The highest risk – but potentially the most profitable – investment is a purpose-built facility, typically an apartment building. This type of accommodation is built with student living in mind, so it allows you the opportunity to install different features that will appeal most to students. It also offers you the benefits of a hands-off investment as these facilities are typically operated by a management company.
Advantages of Investing in Student Accommodation
High Yields – Possibly the number one reason why people invest in student accommodation is due to the fact it can be highly profitable. For example, if you choose to invest in a large shared house and have four different tenants, then you can enjoy the benefit of four different rents, unlike a traditional buy-to-let property.
The market is growing – Student numbers are growing year-on-year, and most need somewhere new to live, so demand is strong. UCAS published a report this year that showed a record number of applicants applied for university in 2019, up 7% on the previous year.
Brexit-Proof – Unlike investments in other markets, the number of those entering university is not currently shown to be impacted by Brexit.
Universities can’t supply the demand – Statistics show that the private sector now owns more student accommodation than universities, which are struggling to meet the demand.
Long-Term Tenancy – Typically courses last three years, some up to six years, so you have the potential to build long-term tenancies.
Guaranteed Rent – Despite generally having a limited income, students are often regarded as the most reliable tenants when it comes to payment.
Hands-Off Investment – Involvement in your investment can be very limited, making it more profitable in the long-term. For example, if you choose to invest in purpose-built accommodation, you’re able to employ a management company who can take care of all the day-to-day running for you.
Resale Potential – Of course, because student accommodation offers so many advantages, they are an attractive proposition when it comes to resale, making your investment less risky.
Disadvantages of Investing in Student Accommodation
Unpredictable Tenants – Students may offer the potential to be long-term tenants who are reliable payers, but some students may decide that university isn’t for them, leaving you with an empty property. Also, some students choose to move accommodation each year, giving you the hassle of short-term tenancy.
Empty Property – Due to the nature of student life, your accommodation is likely to be empty during the Christmas, Easter and Summer holidays. This can reduce earning potential but does allow time for maintenance work.
Legislation – Legislation around renting to students is constantly changing so you must keep abreast of those changes to make sure you’re compliant.
High-Spec Facilities – Although students need somewhere to live, and options are limited, they’re still savvy consumers! Students will typically expect a property to be fully furnished, plus recent research shows that the use of technology is a student’s primary consideration when choosing student accommodation.
Ongoing Maintenance – A regular churn of students – not generally the most house-proud tenants – can lead to wear and tear on the property. This can lead to significant and often unpredictable maintenance costs.
Access to Finance – Buy-to-let mortgages are considerably harder to obtain than a traditional mortgage so it could be tricky to find the funds for your purchase. Cash buyers will find the process much easier.
How Can Reparo Help with your Investment?
Reparo takes a different approach than traditional lenders. We take the time to understand your lending requirements and look at your specific circumstances before we make a lending decision. This allows us to be more flexible with our lending, especially if you need cash quickly. If you have a solid business case and can provide security and a personal guarantee, then we’ll happily take a look. To discuss a loan between £10,000 and £1m, please get in touch with one of the team on email@example.com or 0161 451 5710. You can find out more about us on our website: www.reparofinance.co.uk