Student property; a bandwagon still worth jumping on?

By Karl Griggs, Director at UK brokerage and packager, CPC Finance, suggests that investors need to think a little differently about how to approach student housing.

Related topics:  Landlords
Warren Lewis
31st October 2016
karl griggs

Student accommodation is a popular asset class among investors – after all students always need housing. However, students are becoming increasingly discerning and landlords need to make sure that their properties are of the high quality students now demand. Moreover, the popularity of student accommodation and the competition among landlords is actually making it harder for landlords to invest as part of a successful business model.

Be careful where you choose

Location is always key with property investing but with student property, you need to be careful that there are not too many other student properties already in the area. This can lead to saturation and drive rents down, affecting the landlord’s yield. However, for students proximity to university facilities is paramount so there are only certain locations that students will want to live in, which can drive the value of the properties up.

There are further location considerations if you are looking to convert a property into a House of Multiple Occupation (HMO). Landlords need to be careful about the local regulations – for example there might be an Article 4 Directive in place forbidding any more HMO conversions. Even if conversions are permitted, make sure you have the right licenses in place.

Revise your expectations

If it is the case that an area is busy with student property but you still want to progress with the project, you may have to revise your own expectations of income and accept a lower rental yield. Although landlords may be tempted to raise the rent to increase the yield, no-one is more concerned about value for money than students and you may forfeit tenants. To combat that, rather than looking at one property, landlords could think about building a portfolio of at least three or four.

Think in multiples

Building a portfolio of multiple apartments or houses will not only increase your overall rental yield, you will also spread your risk and ensure that considerations like void periods can be managed more easily. However, going from one or two properties to three or four requires specialist finance and the support of professionals.

Go for a property with potential

Reduce your upfront costs by purchasing a property in need of work. It may be harder to do than before, as many properties appropriate for the student market may already be taken, but finding a property at lower cost will also mean more money is available to do any works needed.

But ensure quality

The stereotypical grimy student digs are now a thing of the past, particularly with overseas students who are paying a premium to attend university in the UK. Students want quality and are prepared to pay for it. A recent report by Glide Utilities, “What Students Seek”, found that 60% ranked having double beds in bedrooms as ‘important’, while 40% considered en-suite bedrooms just as important.

Student property will continue to be a popular and well-performing asset class but as the quantity of available property shrinks, landlords will have to consider more carefully how they make them work in their portfolio.

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