Advice written by Karl Griggs, Director at CPC Finance, on investing in student property. First published in Property Reporter. You can see the original article here.
Student accommodation is a popular asset class among investors – after all students always need housing. However, students are becoming increasingly discerning and landlords need to make sure that their properties are of the high quality students now demand. Moreover, the popularity of student accommodation and the competition among landlords is actually making it harder for landlords to invest as part of a successful business model. Investors therefore now need to think a little differently about how to approach student housing.
Be careful where you choose
Location is always key with property investing but with student property, you need to be careful that there are not too many other student properties already in the area. This can lead to saturation and drive rents down, affecting the landlord’s yield. However, for students proximity to university facilities is paramount so there are only certain locations that students will want to live in, which can drive the value of the properties up.
There are further location considerations if you are looking to convert a property into a House of Multiple Occupation (HMO). Landlords need to be careful about the local regulations – for example there might be an Article 4 Directive in place forbidding any more HMO conversions. Even if conversions are permitted, make sure you have the right licenses in place.
Revise your expectations
If it is the case that an area is busy with student property but you still want to progress with the project, you may have to revise your own expectations of income and accept a lower rental yield. Although landlords may be tempted to raise the rent to increase the yield, no-one is more concerned about value for money than students and you may forfeit tenants. To combat that, rather than looking at one property, landlords could think about building a portfolio of at least three or four.
Think in multiples
Building a portfolio of multiple apartments or houses will not only increase your overall rental yield, you will also spread your risk and ensure that considerations like void periods can be managed more easily. However, going from one or two properties to three or four requires specialist finance and the support of professionals.
Go for a property with potential
Reduce your upfront costs by purchasing a property in need of work. It may be harder to do than before, as many properties appropriate for the student market may already be taken, but finding a property at lower cost will also mean more money is available to do any works needed.
But ensure quality
The stereotypical grimy student digs are now a thing of the past, particularly with overseas students who are paying a premium to attend university in the UK. Students want quality and are prepared to pay for it. A recent report by Glide Utilities, “What Students Seek”, found that 60% ranked having double beds in bedrooms as ‘important’, while 40% considered en-suite bedrooms just as important.
Student property will continue to be a popular and well-performing asset class but as the quantity of available property shrinks, landlords will have to consider more carefully how they make them work in their portfolio.
If you would like to talk to the team about student property finance please get in touch on 01923 655 441 or by email at firstname.lastname@example.org. Keep up to date with all our news and updates by following our CPC Finance UK company page on LinkedIn.