Is student property a good investment?

What are the benefits of HMOs?

• Rooms are typically rented out individually, rather than the property as a whole, so the return is usually larger than it would be compared to a traditional residential property.
• There is always high demand for shared housing as many students wish to live with friends, both for socialising and to split the cost of bills.
• Vacant periods are generally lower than normal residential properties. If one tenant moves out, a landlord will still have financial support with the other tenants still contributing towards the rent.
• There is financial security with each tenant being covered by a guarantor, there will be no reason to worry about covering the costs if a tenant can’t pay their rent.
• HMOs tend to have a lower asking price compared to a PBSA due to their age and location.

What are the benefits of PBSA?

• Most have added amenities within the building to attract students into paying a higher premium. These spaces are also designed to attract overseas students providing high-quality apartments in great locations and easy access to universities.
• Applications from international students, who are more likely to live in PBSA, were 4% higher than last year in the UK.
• Most PBSA developments have building management, maintenance and security in place, allowing  investors to have a more ‘hands-off’ approach, with no need to deal with day-to-day issues.
• PBSA generally has a higher retention rate than HMOs, and are designed to encourage a sense of community, making tenants more likely to stay for longer if they know other people in the building.

Things to consider

HMO

Whilst still very popular, these are generally older properties and may require a lot more general maintenance. Whilst returns tend to be higher compared to a normal residential household, you may need to consider a higher budget to maintain the house.

HMOs are usually converted into a House of Multiple Occupation after the building has been listed as a residential property. Converting the property into a HMO comes with more regulations, change of licensing and the property may require planning permission. It is important to look into these costs before purchasing the property if it does not already have that status.

As HMOs tend to be older properties, it can be hard to compete with the standard of housing provided by PBSA. Tenants are seeking luxury and amenities close to them, so some research into the local area and providing good quality housing for the tenants may require a large cost upfront to make the property appealing to prospective tenants.

PBSA

Purpose-built student accommodation is an attractive option to potential students, with many of them charging a fixed monthly rate which includes all bills including WiFi etc. However it is important to note that this is typically considered a long-term investment strategy, and not something that will provide you with much room for capital growth should you wish to dispose of it down the line. Due to their size and the planning restrictions on these properties, investors will typically have to purchase with cash, instead of mortgage, which may be a factor in your decision-making process.