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Is student property a good investment?

Is student property a good investment?

According to The Guardian, 320,000 sixth formers have applied for university places so far in the UK this year, compared with 306,000 in 2021.

The average annual rent for purpose-built student accommodation (PBSA) in the UK reached £7,374 at the beginning of 2022. This is a 4.4% increase on last year and 16% up on pre-Covid levels. Since 2012, average rents have increased by 61%.

With the continual stream of students each year, and the continual rise in applications and rental prices over the past couple of years, investing in student property would be a reliable asset to add to your portfolio.

Flexibility to suit you

Managing your student property can be flexible, depending on how involved in the property management process you would like to be. If you are looking to invest in a HMO, then you could manage the property yourself, or hire a reputable company to take care of this for you. Alternatively, most purpose-built student accommodation will already have a management company in place to take care of the day-to-day letting and management for you. So you have the option of being involved in as little, or as much as you’d like to be.

 

Student Property Statistics

 

£7,374

The average annual rent for purpose-built student accommodation (PBSA) in the UK reached £7,374 at the beginning of 2022.

4.4%

The average annual rental increase for purpose-built student accommodation in 2022 was 4.4%.

1.9 million

According to the Global Student Property Report, there are over 1.9 million part and full-time students in the UK in 2022.

What do students want from a student property?

Traditionally, student housing has been typically run down, (aside from newer purpose-built accommodation) and in much need of some maintenance and a make-over. Students today are interested in higher quality living to reflect their high student fees and would also like the best from their accommodation, as well as their education. Accommodation For Students (AFS) investigated what students require in a property, the most important aspects are listed below:

  • Speedy internet connection – 83%
  • Inclusive bills – 74%
  • Good storage – 72%
  • Double beds – 61%
  • Large, functional communal areas – 59%
  • Close to campus – 55%
  • Good transport links – 31%
  • Good management – 66% of those surveyed said they had experienced problems with the way their property had been managed

According to the Global Student Property Report, there are over 1.9 million part and full-time students in the UK, with the majority of full-time students needing to be housed, so it is important to understand what students really want from their accommodation. By taking their needs into consideration, you create accommodation that will meet the students’ requirements, which in turn can improve the return on your investment.

What are the different types of student property?

Student halls

Most graduates will be well versed in the concept of student halls. This type of accommodation is provided by the university and provides students with shared spaces with separate bedrooms near to the university campus.

HMOs

Houses of Multiple Occupation (HMOs) are properties that are owned privately and are usually rented to students with an offering of a private bedroom and shared communal facilites. This type of investment will typically provide a high ROI, particularly if the house is at maximum occupancy. HMOs generally come in the form of an older property that has been converted, and most of them have been used for residential purposes previously.

PBSA

PBSA or Purpose-Built Student Accommodation is designed, developed and invested in, with student living in mind. PBSA is rapidly rising in popularity, with the majority now providing students with their own apartment, in addition to communal spaces like gardens and gymnasiums.

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.

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