Buying student accomodation. Thoughts?
Discussion
I'm getting E mails offering some great returns investing in student accommodation. Is it too good to be true? What are the downsides and risk?
https://www.google.co.uk/url?sa=t&rct=j&q=...
https://www.google.co.uk/url?sa=t&rct=j&q=...
Thanks for the replies.
I'll summarise the offer:
Buy a studio in a block for c£45,000, you own the lease.
Studio is fully furnished, let and managed and you receive income, net of deductions of 10% per year.
The studio is yours to sell.
So you don't have to find tenants, don't have to deal with breakdowns or call people out.
Does anyone do this or know of it?
I'll summarise the offer:
Buy a studio in a block for c£45,000, you own the lease.
Studio is fully furnished, let and managed and you receive income, net of deductions of 10% per year.
The studio is yours to sell.
So you don't have to find tenants, don't have to deal with breakdowns or call people out.
Does anyone do this or know of it?
Why aren't they selling to pension funds etc ?
Maybe they are, i don't know.
Why do companies sell franchises when they can make more money running outlets themselves.
I'm going to look into it more, perhaps see if I can talk to some of their investors (unsolicited) and see if the reality is as good as seems.
Maybe they are, i don't know.
Why do companies sell franchises when they can make more money running outlets themselves.
I'm going to look into it more, perhaps see if I can talk to some of their investors (unsolicited) and see if the reality is as good as seems.
drainbrain said:
If you're a potential entrant to the resi letting business why don't you consider something marketable to a far wider clientele than just the student niche?
The returns on this are garunteed and at a far better level than most residential BTL, of course the garuntee may be worthless.blueg33 said:
If they were selling to pensions funds they wouldn't have single units available for private investors.
This is not comparable with a franchise, all they are using is your money, they are still carrying the management overhead.
If the company is sound enough, a clean income strip to you as an investor is good for you. What doesn't make sense is that I would expect them to go for the much simpler lower cost option of selling a whole portfolio.
How many units are in the block? If the GDV is under about £15, then most large investors wouldn't be interested and that could explain this strategy.
The fundamental thing is How can you be sure you will get your rent if someone else is collecting it, especially if they are the landlord for the tenant and you are the head landlord.
The one thing that I have learned developing and selling investment properties of this type is that the financial strength of the vehicle letting to the occupier is critical.
I know it's totally different to a franchise, i was merely using that as an example as to why people sell things. The opportunity i'm looking at has 51 units for sale.This is not comparable with a franchise, all they are using is your money, they are still carrying the management overhead.
If the company is sound enough, a clean income strip to you as an investor is good for you. What doesn't make sense is that I would expect them to go for the much simpler lower cost option of selling a whole portfolio.
How many units are in the block? If the GDV is under about £15, then most large investors wouldn't be interested and that could explain this strategy.
The fundamental thing is How can you be sure you will get your rent if someone else is collecting it, especially if they are the landlord for the tenant and you are the head landlord.
The one thing that I have learned developing and selling investment properties of this type is that the financial strength of the vehicle letting to the occupier is critical.
If you look at the info it's pretty convincing and for property it's a low level (£50,000) investment.
blueg33 said:
If the return is much ahead of other bits of the investment market then there is probably some enhanced risk. I wonder how easy it os to sell on the studio?
TBH if its good and the risk is contained I would be interested, I need to find an investment home for £100k at the moment.
You have mail.TBH if its good and the risk is contained I would be interested, I need to find an investment home for £100k at the moment.
Here is an example of the information I'm receiving ;
Unlike most, our award-winning and experienced developer is fully NHBC accredited and has absolutely zero bank exposure. This means that the main risks and expenses normally associated with real estate development have been eliminated.
To fund projects, whilst maintaining cash liquidity, the developer sells the individual units from within each development to investors on long-term leaseholds.
The developer retains ownership of the freeholds and are fully responsible for the maintenance of all communal areas.
The sale of these units is designed to cover all initial purchase/construction/refurbishment/start-up costs associated with development preparation before letting.
The developer maintains control and responsibility of each development by renting units back from investors, becoming the contractually fixed tenant for the next 10 years. This means they are contractually obliged to pay investors, regardless of the actual circumstances of the property.
The developer will then sub-let the units at a premium, taking full responsibility for the process, and benefitting from any upside it achieves.
Please bear in mind that this structure of long-term tenancy is unfortunately incompatible with mortgages, and as such, all investor purchases are cash-only.
Every unit is individually priced to be comfortably self-sufficient, whilst providing a market leading yield to investors. The gross income covers all associated costs, whilst also providing the developer with their own net return as well. The developer’s profit margin will increase as the gross income increases each year.
This structure ensures that interests are aligned and all involved are incentivised towards the same goals.
The investor is not responsible for any costs throughout the investment, and is free to sell at any time.
High yields have proven to be vital at resale. The price of an investment property does not change independently from its yield. It is in fact purely driven by its ability to generate income, since the purchaser is always an investor, and never the end user. Therefore, the price should only be high if the yield is high.
Investors are naturally prepared to take a lower yield percentage for the inherent benefits of an immediate income.
Capital growth from a fixed income agreement is achieved through yield compression. The higher the fixed income agreement, the better the possibilities are. In general, as soon as a property is providing a net income of 10%, a capital growth of 20-40% is a very reasonable expectation, given the other alternatives on the market. A premium is commanded by completed properties with immediate income because most investments being offered are off-plan. We offer to resell all properties for clients at any requested time.
At the end of the initial 10 years, the developer will review the real increase in gross income, and offer another investment period to all investors. The investor could also choose to take full responsibility at this point, taking full control of the variable gross income.
The key is absolute alignment of interests.
Remember, investors are free to sell at any time after completion, and we offer to resell all of our properties for clients.
Unlike most, our award-winning and experienced developer is fully NHBC accredited and has absolutely zero bank exposure. This means that the main risks and expenses normally associated with real estate development have been eliminated.
To fund projects, whilst maintaining cash liquidity, the developer sells the individual units from within each development to investors on long-term leaseholds.
The developer retains ownership of the freeholds and are fully responsible for the maintenance of all communal areas.
The sale of these units is designed to cover all initial purchase/construction/refurbishment/start-up costs associated with development preparation before letting.
The developer maintains control and responsibility of each development by renting units back from investors, becoming the contractually fixed tenant for the next 10 years. This means they are contractually obliged to pay investors, regardless of the actual circumstances of the property.
The developer will then sub-let the units at a premium, taking full responsibility for the process, and benefitting from any upside it achieves.
Please bear in mind that this structure of long-term tenancy is unfortunately incompatible with mortgages, and as such, all investor purchases are cash-only.
Every unit is individually priced to be comfortably self-sufficient, whilst providing a market leading yield to investors. The gross income covers all associated costs, whilst also providing the developer with their own net return as well. The developer’s profit margin will increase as the gross income increases each year.
This structure ensures that interests are aligned and all involved are incentivised towards the same goals.
The investor is not responsible for any costs throughout the investment, and is free to sell at any time.
High yields have proven to be vital at resale. The price of an investment property does not change independently from its yield. It is in fact purely driven by its ability to generate income, since the purchaser is always an investor, and never the end user. Therefore, the price should only be high if the yield is high.
Investors are naturally prepared to take a lower yield percentage for the inherent benefits of an immediate income.
Capital growth from a fixed income agreement is achieved through yield compression. The higher the fixed income agreement, the better the possibilities are. In general, as soon as a property is providing a net income of 10%, a capital growth of 20-40% is a very reasonable expectation, given the other alternatives on the market. A premium is commanded by completed properties with immediate income because most investments being offered are off-plan. We offer to resell all properties for clients at any requested time.
At the end of the initial 10 years, the developer will review the real increase in gross income, and offer another investment period to all investors. The investor could also choose to take full responsibility at this point, taking full control of the variable gross income.
The key is absolute alignment of interests.
Remember, investors are free to sell at any time after completion, and we offer to resell all of our properties for clients.
I received this in response to asking the name of the holding company.
A1 Alpha Properties (Leicester) Ltd is the main parent company behind all our investments. It is run by Derek Arthur Kewley and Nicholas John Spence.
This is a 16-year-old award winning UK based development company with a diversified portfolio of high cash flow commercial assets. These include student property developments, retail units and serviced apartments.
I understand that they are by far the most experienced developer in their sector, and unlike most, this developer has zero bank exposure. They are also the only one with NHBC registration, and have in fact been NHBC accredited for over a decade now, actually winning an award from them in 2005.
For student property, income is contractually secured by the main holding company, A1 Alpha Properties (Leicester) Ltd. Our serviced apartments in the holiday sector have their own structure.
It is worth noting that most of their properties and assets are, at least initially, bought through limited SPVs. These are set up to handle the risky construction, refurbishment or sales stages of each project. This strategy effectively ring-fences all investors from the risks associated with embarking on any new projects and ventures in future.
We call this selection of SPVs, coupled with the main parent company, Alpha Homes. (Prospectus attached)
For most of their student property investments, the main holding company hires in an independent professional management company, called Mezzino, to run the sites. Their work has consistently proven to be very successful.
For their properties in the holiday sector, everything is overseen by the developer themselves, under the name ‘Green Parks’, utilising partnerships with various other firms to maximise bookings and reservations.
Purely from the properties that we have been involved in with them since 2012, I understand the developer is now looking at a gross annual rental income of almost £17million, following total sales of around £155million, and assets of almost £32.5million.
This does not take any alternative sources of income into account, nor any developments currently secured in the pipeline, of which there is already a sales value of over £50million, with addional freehold asset values worth more than £9million.
Remember, from the moment contracts are exchanged, investor interest is registered with land registry, and there is full recourse against the developer for the full value of income.
Investors are also free to sell at any time.
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