Student buy-to-let investment property review

Is there a solid grounding behind the hype surrounding student buy to let investment property?

The positive market fundamentals of the student property market, as quoted by Knight Frank, point out that student property investment was the best performing property investment in 2012 and that rental income is increasing by five per cent (5%) per annum. These are, however, macro fundamentals that are covering the whole sector.

How can a property investor make a good investment?

What are the items one could look out for to safeguard ones investment?

Supply and demand

Investors are drawn to the big University Cities, like Liverpool, with a student population of 55,000 one would automatically expect demand to be good. Surprisingly, there are supply side issues that one may easily overlook.

Liverpool Town council have been unrelentingly passing planning permission for student accommodation. The Liverpool Echo newspaper states that over 5000 student new student beds have been approved for development over the past year.

Although demand is high, the flood of new student properties coming onto the market could have a dampening effect on rental yield as landlords have to decrease their rent in order to obtain tenants.

Changes in legislation present opportunities. ‘The Article Four ruling which has been adopted by Nottingham, Leicester and Southampton town council is particularly interesting to investors’.

The Article Four direction effectively limits supply by restricting the provision of planning permission for student accommodation. In a bid to maintain the number of family homes, local councils have made it a requirement that planning permission to be obtained from conversion of a single family home to a residence to be used for more than three unrelated occupants.

Where supply of new student accommodation is being restricted, there is increased likeliness of your student property being rented and solid rental income for the future.

In some smaller towns like Chester and Canterbury, planning permission is very limited because of the shortage of available land within the centre of these historic cathedral and market towns. Purpose built student property in Canterbury will meet the future requirements of the growing demand. The current university accommodation in Canterbury only provides for 22% of the student population.

Location

The old adage, location, location, location can never be ignored when it comes to property. The convenience of location is one of the most important factors for students because the cost of an additional bus fare and an extra 20 minute lie in are high on the student list of priorities.

Management Company

‘Students are highly sophisticated consumers and are particularly aware of branding in other areas of their life. Branding for accommodation could serve to give a higher level of customer penetration. Just like hotels, branding would also give instant recognition which would create product differentiation around varying price points, which is believed would only enhance the chances of achieving full occupancy with greater lettings velocity.

The student lettings market is highly competitive. There is a very short period of three months between July and September where students typically decide on which residence will be their home for the next year. It is therefore crucial that your lettings management team is ahead of the game, if not, the results could be quite catastrophic… meaning that you would have an extended vacancy period.

Rental Guarantee

A lot of student property investors have found comfort in an extended rental guarantee period. The typical rental guarantee offered on the first student accommodation investments was just one year. However, some developers of student property investments are now providing rental guarantee periods extending to as long as five years.

The peace of mind that comes from having a guarantee of a net income between 8% and 10% is often offset by the fact that if the developer will keep rental income increases during the next five years. The full maintenance and lettings costs can sometimes be included in the Net rental income figure; which makes the developer liable for any repairs and upkeep of communal areas. The buyer only has to cover the replacement cost of furniture within the studio.

Conclusion

On the whole the student property market remains buoyant. The rental income returns outperform the majority of residential investments. With the right help you can navigate through the obstacles and reap excellent rewards with a fairly low level of investment.

For further information, advice and guidance on investing into the student buy to let property investment market please complete the short form below.

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