Looking to connect with investors who have purchased student pods

Hi Michael

I've never purchased one myself but I have done a fair bit of research and for the right investors I agree that they look like a good deal.

They seem particularly well suited to overseas investors and the retirement market, i.e. people who are looking for a relatively passive income without borrowing.

It is unusual for these types of investment properties to be mortgageable, the downside to this is re-sale potential.

The developers selling these units are currently paying around 10% commission on sales to their agents so it could be argued that the day one resale value is at least 10% below the purchase price. However, as most of these units are purchased off plan the developer would probably argue that by the time they have completed the value has risen by more than that. It's a fair argument but to date I've not seen any evidence. The value of property is only what somebody is prepared to pay. Remove access to finance and the market becomes limited. Nevertheless, the income produced by these investments is mouth watering when compared to return on bank and building society accounts.
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I have bought one of these, due for completion in the summer, and what's odd about the lease is that there is nothing in it that says it has to be let to a student. The set up of the building is clearly designed for semi-communal living, and the studio flat is just one small room and not very practical for long-term accommodation.

Reply to the comment left by "Alan Bromley" at "05/04/2015 - 16:42":

Hi Alan

Was it finance able?

How much did it cost?

What did you consider when you did the due diligence cue?

How much will it rent for?

Why did you go for a student pod as opposed to something with wider market appeal?

Sorry about all the questions but I'm really interested?
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I am paying cash for it - £70,950 including legal fees - so don't know whether one could get finance but, as you imply, it's unlikely to be. A friend did a similar deal through Knight Knox but in a different city and so far it's working out well.

There is a 2-year guaranteed net yield of 8.5% and you don't have to use the current managing agent after 3 years. The set-up means that the service charge includes all utilities so it's pretty simple in terms of management. The total rental income is of course subject to the rents being maintained after 2 years but £150 pw including all bills is not too bad, although it's aimed at the wealthier end of the market.

This is part of a small portfolio of flats and, given the relatively low cost, I thought it to be low risk. There's a fair amount written about such schemes on the internet and that was the only due diligence I undertook! I guess it's too soon to know of any long-term issues.

I do wonder who keeps an eye on the students and their behaviour, although there is a caretaker and I would expect the managing agents to play a role. Having viewed a number of student houses in my search for properties all I can hope is that my student has higher standards of cleanliness!

The stumbling block on these student pods is getting a mortgage as most lenders want a minimum floor area of 30sq metres, and if you are investing in a new build you have to pay cash anyway as no lender would lend until build is completed.

My broker has come up with a new lender with no minimum floor area for loans, whether they will lend on student pods I don't know. I can't remember the lenders name or the interest rates which I assume would be higher than normal.

It could make the pod market much more attractive if more people can get finance.

The main downside with these schemes is that control is almost completely out of your hands, I wouldn't take the plunge as a main investment only as a small part of a larger portfolio.

Reply to the comment left by "Mark Alexander" at "05/04/2015 - 10:18":

Hi Mark

I have taken the plunge on 3 units in Newcastle completing April 16, all self contained penthouse studio apartments facing south, floor area 19sq metres cost £107k which is higher than most but the building is far better than some of the refurbs being done. Some say the cost is too high but I have guaranteed income for 3 years of 8% net so cost is relative to return anyway.

I will let you know more details when I have time.

Reply to the comment left by "Colin Dartnell" at "06/04/2015 - 11:45":

What I can't understand if why depreciating asserts such as cars, caravans and furniture are finance able but student pods are not. Maybe that will change as the market matures and resale values are established.
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Reply to the comment left by "Mark Alexander" at "06/04/2015 - 11:49":

Most likely as furniture and cars etc can easily be taken back and resold and normally the interest rates are higher so they make good money on most loans. Whereas the thought is that student accommodation is hard to resell and lenders don't want the hassle.

Eventually they might realise this is a growing market and will get involved.

Dear Mark, Alan & Colin

It really is great to have this connection and very interesting to hear from your guys experience.

MAIN CONCERN

My main concern is that if the rental market falls and in the worst case scenario the property is left empty with no one taking care of the building.
I could live through this scenario, just as long as I still own the space I purchased and there’s no legal loop hole that sees me losing the property.
This is my only real concern. Because, I believe no matter what the building would be for sure useable again in the future.

ALTERNATIVE MARKET

During my research I came across a project called Park Lane in Sunderland. I learned was that the local council had pre-empted the possibility of the building not housing students (in the future) and therefore had made provisions for the building to be used as domestic lets.

RENTAL PAYMENT TERMS

I learned was that the payment terms from some developers could be negotiable with them paying the rental income in 3 month periods, rather than their preferred yearly period.

Have you guys been able to negotiate any specific terms?

AGENTS

Alan & Colin, may I ask which agents you purchased through?

I have been connecting mainly with 2 companies Emerging Properties & Principal International.

Looking forward to hearing more!

Reply to the comment left by "Colin Dartnell" at "06/04/2015 - 11:45":

I live in Newcastle and I think I know the block you are talking about. Opposite the Cathedral?

I'm not sure if you are familiar with Newcastle but these are in a great location, that particular area is very much the fastest up and coming area.

It's now known as "The diamond strip" among the students, as it is where all of the high end bars are located.

If you are a student, it will be the place to live!