Thu 16 Feb 2017 View all news articles

Risks and pitfalls of student accommodation investing

Many seasoned landlords have asked me about Student Accommodation investments, particularly new build student ‘pod’ apartments. Are they all they are cracked up to be? Well, right now demand is high, as too are the yields, so surely the answer is ‘Yes’? Well that’s if we look at them ‘right now’, though what about in the future? As after all this is an investment, not a quick ‘cash cow’.

Currently the average student rent across the UK is high, not far off £600pcm according to a National Union of Students survey. That’s a massive 20% increase over the last 4 years. UCAS are showing residual growth in University applications and with George Osbourne recently eliminating the cap on the number of students each University can take, all this sounds good for landlords wanting a piece of this rental pie. And particularly popular right now are the new build student ‘pods’.

However, as with all areas of lettings there are pitfalls to consider, and you will encounter your fair share with student pod investments. I believe that a considerable disadvantage with this type of rental investment will be the increase of their value over time, which is known as capital growth and then there is of course their eventual resale value. Ponder the thought that if you needed to off-load your asset at any time you must consider that these types of investments appeal to a smaller audience of investors than other types of student accommodations, such as HMO’s and flats. 

Then we must take into account the ‘guaranteed’ yields of 8 or 9%. This guarantee is dependent on several factors that are out of the investors control. For instance the return is only as good as the firm promising it, are they industrious enough to stand behind this assurance? Then there is something which is out of their hands and again yours, as newer developments are released, will these new additions and competition devalue your investment?

Although everything is rosy right now, my advice would be to proceed with caution and perhaps select an investment ‘basket’ with a lot more eggs to choose from, as oppose to putting all your investment eggs in this one restrictive basket.

As leading Wirral estate agents and lettings agents we have plenty to talk about and like to give our opinions on a few things too! Read about what we have to say, our latest news and industry news.