Student Accommodation Investment Guide
UK Student accommodation has always been one of Emerging Developments primary recommendations to any investor. Our reasoning for this is quite simple: it's a low risk, high yielding and totally hands-off investment and our clients have profited hugely over the last three years in this sector.
Student numbers increased by 20.5% between 2006-2012 and when you combine this with a huge national shortage of student accommodation, this is still a perfect time to take advantage of current investment conditions. Student accommodation has high rental yields (typically between 8-10% gross yields depending upon the property type) and totally hands-off, hassle-free ownership, student accommodation ticks all the boxes.
Exit strategy for the Student accommodation.
INCOME GENERATING ASSETS - Student Accommodation investment
Purpose built student accommodation as an investment is a relatively new idea for many investors. The concept has historically been the venture of choice for investment funds and financial institutions due to the above average yields.
Capitalising on a purpose built residence is just like “A buy to let” investment because you buy the unit and "let" it out to paying students. The most successful income generating assets (IGA’s) have been those that use a well-established operator with a substantial track record and well forged connections within the student sector.
Our student accommodation investments are fully managed and marketed by the operator, providing investors with the opportunity to achieve a great return whilst being completely ‘hands off’. It’s in the best interests of the operator to ensure the properties they manage are occupied, so investors can rest assured that the investment they make will be a lucrative one. On average, the yields generated from student residencies are far greater than those accrued within the traditional buy to let market.
LUCRATIVE EXIT STRATEGY - Student Accommodation investment
Once a student residence is operating and a proven income stream can be shown, the investor can then take advantage of the resale market.
The room would be valued on a commercial basis according to the level of rental income and the quality of operator.
It’s reasonable to assume that if the rental income achieved rises by 10%, then the room value will rise by a similar amount, as it’s typically the yield percentage that the new investor is seeking.
Investors should look to buy a residence off-plan and take advantage of the early years’ greater than average rental income. Experts predict an annual increase of 3-5% in the student sector. When the rental income has a solid track record then you have a proven IGA to resell.
Due to the pricing of the CUBE in Bolton for example, a waiting list was set up for future buyers, and we’re expecting a similar response for the next release. There are now a number of dedicated resell companies coming online preparing for a lucrative new sector in the years to come.
The resell market is the next big thing because pods with track record are more interesting than off plan with forecasts. Like comparing a new start up company with a ready running one, which one would you go for?
Student Comparison Table
High rental yields?
Hands-off, fully managed investment?
(No phone calls, just regular receipts)
Extemely low voids nationally?
Shortage of property?
Significant rental growth over the last five years
Rental growth expected to continue
Recession resilient investment
Very low risk investment?
STUDENT ACCOMMODATION FACTS
The Knight Frank Report 2015 has reported through their own research, that only 50% of all students in the UK have access to high-quality purpose-built Student Accommodation. This figure drops dramatically to 20% when you compare the student/purpose-built housing ratio in London alone.
Other benefits of investing into the Student Accommodation sector are:
Purpose-built student accommodation attracts a higher quality of student - higher rents and overseas students with minimal budget restrictions. These are effectively private halls of residence.
UK Student Accommodation investments: Individual apartments within blocks adjacent to university campuses. This takes advantage of distressed sale opportunities in the residential market place but utilises the property for student purposes to significantly increase yield.
Student Accommodation investment provides Cash-positive, long-term investment – typical rents are significantly higher for student properties than a comparable Buy to let property in the same city. As a result, mortgages can often be paid off in 15 years or less from the net rents received.
More people attending universities, creating a solid and sustainable demand. Student numbers are set to continue to rise in coming years – especially in the big cities in the UK which has the most students of any city in Europe and the most international students of any city in the world.
Minimal voids – tenanted for almost all of the year and you typically now seven months in advance that your property is tenanted for the next academic year due to pre-lettings.
Hassle-free investment – private halls are managed by on-site management teams who will handle all bills and ground rent, meaning you only have two outgoings: mortgage and management fee.
Rental income has increased by 3-5% each year for the past five years in the student accommodation property sector.
Student property has continued to be one of the most resilient investment sectors in the UK during the economic downturn, with most rental incomes and property values remaining stable or increasing.
Student Accommodation investment : Exit strategies – although we recommend student accommodation as long-term income investment, long-term provable high income on a property makes a property much more saleable. Standard apartments near to university campuses can be sold for traditional residential purposes or resold to in house investors looking for high yields in a steady market.
Student Traditional BTL
Large shortage Over Supply
Yes To Some Degree
Click PDF for Deloitte Student Accommodation Report