Students need a place to live, and this is why real estate investors focus on student accommodation properties. They are considered a low-risk proposition for the investor, and it provides a valuable service for those attending university.
What Is Student Accommodation?
In the UK, student accommodation refers to the practice of renting housing to students attending universities. Usually, housing is specially designed for students, called Purpose-Built Student Accommodation, or PBSA.
One of the reasons PBSA is said to exist is so that it doesn’t drive up rents elsewhere in the real estate market. This also makes investing in student accommodation very profitable. Why? Because students often pay far more for housing than typical tenants.
Many students are foreign, don’t understand local real estate markets, and aren’t able to properly judge the “going rate” for rents. Plus, they need a place to live that’s either on campus or near it. Rents in Brighton, for example, are rising roughly 7 to 8 percent a year.
This is expected to continue for as long as foreign student immigration remains popular, and that will likely continue as long as the UK keeps its educational standards high.
Advantages of Student Accommodation
One of the major benefits of a student accommodation investment is that your rental income is fairly stable. Student housing carries a notoriously low (1 per cent) vacancy rate. The number of students in private rental properties has also risen by 155,000 since 2007, making real estate investing in this sector very attractive.
Total capital growth, plus rental income, is expected to be 9.3 per cent going forward for the near future, and was achieved during 2013, and 2014.
Over the long-term, analysts expect investors to achieve yields of between 7 and 9 percent. Needless to say investing in student accommodation pays off. Because students need to stay near the university, there’s very little risk of them leaving you.
This accounts for the amazing success of investors who get into a student accommodation investment, and for the low default rates on mortgages used to purchase PBSA. And, each year, your students renew their tuition, you are virtually guaranteed another year of income.
As students graduate, they are replaced by more students. It never ends. Finally, these types of investments require very little assistance and management.
Disadvantages of Student Accommodation
One of the major disadvantages to investing in student accommodation is the fact that, if you hire property management, you have almost no control over the fees charged. If you are sold a development “pod,” you may have to hold onto it forever, which may initially sound nice, except that management fees can rise, erasing your returns.
Another disadvantage is that, depending on your student accommodation investment, you may not be able to easily sell your investment if you need a lump sum of cash in a short period of time. In that sense, these investments suffer the same disadvantage as most other types of real estate investments – they’re not very liquid.