Student accommodation in the UK has been a strong asset class with consistent and growing returns, making it a leading property investment for investors in the UK and all around the world. Student accommodation is a great alternative to the more traditional buy-to-lets and HMO property investments. Those strategies of property investment have been around for a long time and because there have been many successful investments in those asset classes, the demand is much lower.
On the other hand, purpose-built student accommodation is doing well, with developers choosing to build these specialist properties in fresh locations with a higher demand because of low supply. Purpose-built student accommodation differs from buy-to-let investments and HMO investments because they are usually cheaper to purchase due to these properties being off-plan. On top of this, they are especially built to suit the needs of student tenants, so they are close to the university, have study and social facilities and are a close distance to shopping and city centres.
This article will explain why purpose-built student accommodation investments are highly profitable and risk free in today’s market compared to other types of properties for tenants to rent.
Is there a demand for student accommodation?
The current market is showing no signs of decline in the demand for student housing. All across the UK there are world renowned universities where thousands of students are studying. The number of students is further increasing because more students from overseas are choosing to study in UK universities, which is one of the reasons why the standard of student accommodation is rising. Overseas students are willing to pay a lot more for a high quality purpose-built accommodation.
In 2016 around 522,000 students were accepted to UK universities through UCAS. This compares to 2015’s figures with a 7,000 increase since last year. In addition, universities in the UK are also accepting a lot more applications as the cap that limited student acceptances per course was removed a couple years ago. As student numbers within the UK increases and the amount of overseas students also increasing, the demand won’t seem to stop for student accommodation investments.
Compared to a regular buy-to-let, the demand is a lot higher. Students are looking for luxurious housing instead of a typically small bedroom with a shared kitchen. Because the supply of buy-to-lets is already satisfied, going into a new, untapped market such as purpose-built student accommodation is the way to go for an innovative, valuable investment.
Will students make reliable tenants?
A few investors who are more familiar with general buy-to-let investments and other residential properties may be a bit hesitant moving towards a student-only property due to the fact that they assume students make troublesome and unreliable tenants.
This is far from the truth when it comes to a purpose-built accommodation as it is specifically made for students. The property features many facilities such as common rooms, gyms, WiFi, study areas and more. This high-standard of specifications makes the investment more valuable, attracting tenants who are looking for a more luxurious property to rent whilst studying.
As well as the in-house facilities, purpose-built accommodation is built within walking distance from the local universities and city centres, which is ideal for students, making them more likely to spend more on the extra convenience.
As far as finding the suitable tenants, most property investment company’s and developers will include tenant sourcing in the property investment deal. This means that management of the property is included in the price you paid to invest. So, no additional costs for any repairs or maintenance as well as no stressful phone calls from tenants. It is essentially a hands-free investment ideal for those looking for a long-term passive income.
What will the returns be for purpose-built student accommodation?
As mentioned, purpose-built student accommodation is generally off-plan, which means it is on the market before construction is complete, giving the investor a massive discount. This is attractive to investors because if the time comes when they want to sell the property, it will be at a much higher price once completed. The already discounted price means an even higher profit than buying an already built HMO with low rental yields.
The management fees are also generally covered with an off-plan investment for a set number of years. Many investments in student accommodation will include a 7-9% rental return assurance for 3 years as well as the management covered by a company of the developer’s choice. The price is included in the investment price, which will save you money. If you choose to manage the property yourself or hire your own property management company, then the costs may be higher as you will have to pay the management fees out of your own pocket.
Is Purpose Built Student Accommodation A Good Investment from Sterling Woodrow Ltd
Does this mean student accommodation investment is profitable?
Depending on the location, the net rental yields per year will vary. One of the most known locations for student property investment is Manchester. This is still the home to one of UK’s leading universities but compared to 5 years ago, the demand in this area is much lower due to over-saturation of purpose-built student accommodation options. Consequently, the average yield for this area is about 5-6%. For investor’s today, this location is much more competitive and doesn’t offer the most promising returns, but the student population is still thriving.
Areas that are much less known, but still have very well renowned universities such as Sheffield, Liverpool and Huddersfield are now becoming more popular amongst investors. This is because they have prosperous universities with a high student population, but the areas is not overly saturated with accommodation for students, making it less competitive. As a result, these areas have a higher rental yield of up to 9% as more students are demanding accommodation in the area.
If you are looking for a property investment that can be medium to long-term with high demand and rental yields every year, then you can get that with a purpose-built student accommodation investment. To find the best deal on property investment speak to a property investment company who specialises in off-plan and student accommodation investments.