Investing in student accommodation
Discussion
Achievable returns are quoted at around 10% net and fully managed (unleveraged). Tbh, I'm struggling to find anything better than 7.5% yield (net of all costs) but I've not looked that hard.
Wondering if anyone has any analysis, thoughts, experience or track record in either fully managed blocks or buying houses and splitting them into individual student studios.
I'd also be really interested in thoughts on where there is a good growth (expanding universities) or areas where students have struggled to find decent quality housing.
Wondering if anyone has any analysis, thoughts, experience or track record in either fully managed blocks or buying houses and splitting them into individual student studios.
I'd also be really interested in thoughts on where there is a good growth (expanding universities) or areas where students have struggled to find decent quality housing.
There are hundreds of these units being built in Liverpool at the moment cheap to buy and quoting similar yields.
My main concern that’s putting me off is the lack of control you would have. They are student only blocks so resale could be an issue, they are controlled / managed by the company so what say do you have? It would be similar to investing in a property fund IMO but with extra risks.
Buying the property yourself carving it up and renting to students / young professionals is IMO a much better way of doing it and one I’ve done in the past.
My main concern that’s putting me off is the lack of control you would have. They are student only blocks so resale could be an issue, they are controlled / managed by the company so what say do you have? It would be similar to investing in a property fund IMO but with extra risks.
Buying the property yourself carving it up and renting to students / young professionals is IMO a much better way of doing it and one I’ve done in the past.
ok so having done some more research, the 10% net of costs is achievable on off-plan developments (new-builds).. the yields tend to be guaranteed for 5 years and the growth beyond that seems sensible and realistic.
There are some benefits.. low transactions costs (no SDLT) and 4% yield on your deposit money until completion.. this 4% is deducted from the final purchase price so you don't get the cash flow during the build but there's a tax benefit to receiving the yield as a discount, as opposed to income.
No hassle investment, guaranteed yields, what's not to like?
I guess my main concern is a) confidence in a good yield beyond the 5 year guarantee, and b) being able to sell on the property.. to me that's a considerable risk and requires the investor to be confident that demand will continue to be strong in the area you choose to invest in... so that requires a University that is growing and a good knowledge of how many PBSAs are in the pipeline for your chosen area.
Any further thoughts or shared experiences welcome.
There are some benefits.. low transactions costs (no SDLT) and 4% yield on your deposit money until completion.. this 4% is deducted from the final purchase price so you don't get the cash flow during the build but there's a tax benefit to receiving the yield as a discount, as opposed to income.
No hassle investment, guaranteed yields, what's not to like?
I guess my main concern is a) confidence in a good yield beyond the 5 year guarantee, and b) being able to sell on the property.. to me that's a considerable risk and requires the investor to be confident that demand will continue to be strong in the area you choose to invest in... so that requires a University that is growing and a good knowledge of how many PBSAs are in the pipeline for your chosen area.
Any further thoughts or shared experiences welcome.
Normally after the guaranteed period of 5% say 5 years, the place needs a new kitchen, redec, refurb, and of course that’s carried out by the ahem management company and not at cost, of course the could be a new block opening up down the road...there is only a limited number of students and I believe the numbers are going to drop because of birth rates....like marmite you may hate or love me, just my tuppence worth.
Normally after the guaranteed period of 5% say 5 years, the place needs a new kitchen, redec, refurb, and of course that’s carried out by the ahem management company and not at cost, of course the could be a new block opening up down the road...there is only a limited number of students and I believe the numbers are going to drop because of birth rates....like marmite you may hate or love me, just my tuppence worth.
..I think he's referring to a property fund.. safer investment and broader risk but returns would be quite a bit lower and management / transaction fees would knock the yield even more. If he's not, then I'm also curious..
I've come to the conclusion that PBSA is fine, but you need to research the area, the location of the unit, the amenities provided and the developer.. the Savills report is a good starting point.
https://pdf.euro.savills.co.uk/uk/residential---ot...
Another point is that they are cash investments only (no leverage) so you could buy a regular flat with a 6% yield and boost it to 10% + through leverage at 2-3%
I've come to the conclusion that PBSA is fine, but you need to research the area, the location of the unit, the amenities provided and the developer.. the Savills report is a good starting point.
https://pdf.euro.savills.co.uk/uk/residential---ot...
Another point is that they are cash investments only (no leverage) so you could buy a regular flat with a 6% yield and boost it to 10% + through leverage at 2-3%
I would tread carefully with these types of things. If they are offering you a guaranteed yield it’s often built into the price.
I’ve looked at a number of student pads in Liverpool which have sold initially for £50k+ but have ended up at auction as they have struggled to sell on the open market. Typically they are advertised around £25k
I think, as has been mentioned, that the market for these is limited so resale prices are poor.
In truth the student market is saturated in most of the university towns I’ve considered (Liverpool, Leeds, Manchester etc). Competition is fierce so makes guaranteeing a yield hard
I’ve looked at a number of student pads in Liverpool which have sold initially for £50k+ but have ended up at auction as they have struggled to sell on the open market. Typically they are advertised around £25k
I think, as has been mentioned, that the market for these is limited so resale prices are poor.
In truth the student market is saturated in most of the university towns I’ve considered (Liverpool, Leeds, Manchester etc). Competition is fierce so makes guaranteeing a yield hard
We owned an HMO for students in Sheffield a while ago. We had it for 4 years and by the time we sold the University was building large blocks of self contained flat type student accommodation to cash in on this lucrative business.
It was noticeable that there were a lot more unlet HMO’s available when we sold and our buyer was a family that just wanted a home.
My advice is caution. Things can change very quickly affecting not just your income but also your asset value.
It was noticeable that there were a lot more unlet HMO’s available when we sold and our buyer was a family that just wanted a home.
My advice is caution. Things can change very quickly affecting not just your income but also your asset value.
As others have said, tread warily. The latest fad.
If money is so easy, why don’t the providers finance it and keep the equity/upside themselves.
Had a similar conversation with one of those outfits offering hotel rooms a few years back (can’t remember the name) and the arrogant young prick I spoke to didn’t see any problem in them bandying around rates which were more than the likes of Hilton, etc were charging and couldn’t understand why I didn’t take their figures seriously. 12 months later they were bust ...
If money is so easy, why don’t the providers finance it and keep the equity/upside themselves.
Had a similar conversation with one of those outfits offering hotel rooms a few years back (can’t remember the name) and the arrogant young prick I spoke to didn’t see any problem in them bandying around rates which were more than the likes of Hilton, etc were charging and couldn’t understand why I didn’t take their figures seriously. 12 months later they were bust ...
PBSA is hot market for institutional funds with decent returns for them. The question you have to ask when looking at a "retail" investment in the market is why is the developer seeking retail funds rather than institutional.?
Coming from the perspective of having been involved in building circa 6k units over the last five years with a similar pipeline for the next five the key differences I've noticed is that institutionally funded schemes and those by the major PBSA providers e.g. Unite, IQ, UPP, Fusion, Prime will generally have nomination agreement with a university so that students asking the university accommodation office will be directed towards those schemes in addition to any on campus accommodation. The nomination agreement may include a minimum occupancy guarantee for three, five or ten years.
The private retail funded schemes I've seen so far haven't had such a link and the developer/managing agent relies on either undercutting the nominated providers, offering better facilities or the area having a shortage of decent accommodation. The development pipeline in most of the obvious student cities really makes the viability of these schemes outside of the initial guaranteed rental period to the investor somewhat dubious which coupled with the need for major refurbishment roughly every five year can see these being a liability for the owner.
Check the T&C's around rental income and in particular it is based on your room being occupied or percentage occupation of the scheme, you as the bedroom owner are dependent on the managing agent finding a student to occupy the room. You can't with PBSA market the room yourself or offer differential / discounted pricing to attract a student.
Another factor to consider is desirability of the scheme to students either through pricing or value added features five years ago a typical scheme would consist of shared bathroom bedrooms, en-suite bedroom and social kitchen for the cluster together with a few private studios with either a common social space or gym for the whole scheme. Now I'm seeing pretty well every scheme has only having en-suite bedrooms organised as clusters with large social kitchen / living / diners (KLDs in industry jargon) and studio's. The development then offers a common dinning room, gym and cinema room, club or bar.
Coming from the perspective of having been involved in building circa 6k units over the last five years with a similar pipeline for the next five the key differences I've noticed is that institutionally funded schemes and those by the major PBSA providers e.g. Unite, IQ, UPP, Fusion, Prime will generally have nomination agreement with a university so that students asking the university accommodation office will be directed towards those schemes in addition to any on campus accommodation. The nomination agreement may include a minimum occupancy guarantee for three, five or ten years.
The private retail funded schemes I've seen so far haven't had such a link and the developer/managing agent relies on either undercutting the nominated providers, offering better facilities or the area having a shortage of decent accommodation. The development pipeline in most of the obvious student cities really makes the viability of these schemes outside of the initial guaranteed rental period to the investor somewhat dubious which coupled with the need for major refurbishment roughly every five year can see these being a liability for the owner.
Check the T&C's around rental income and in particular it is based on your room being occupied or percentage occupation of the scheme, you as the bedroom owner are dependent on the managing agent finding a student to occupy the room. You can't with PBSA market the room yourself or offer differential / discounted pricing to attract a student.
Another factor to consider is desirability of the scheme to students either through pricing or value added features five years ago a typical scheme would consist of shared bathroom bedrooms, en-suite bedroom and social kitchen for the cluster together with a few private studios with either a common social space or gym for the whole scheme. Now I'm seeing pretty well every scheme has only having en-suite bedrooms organised as clusters with large social kitchen / living / diners (KLDs in industry jargon) and studio's. The development then offers a common dinning room, gym and cinema room, club or bar.
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