Buying Student Accommodation

[Flatlander]

Hi,

I just wondered whether anyone had any experience/opinion on how good an investment they think this is:

(I can't post a link - go to google and put in "property frontiers Streatlam House" and the right page with the property will come up)

An old listed building being converted into student rooms, yielding 10% net per year which is obviously the attraction. Of the 3 types of student accommodation, (regular, luxury, and high-end) they are apparently going to be in the 'luxury' bracket - computer room, a gym, wide screen TVs in the rooms.

My concerns though are things like this, but not sure how relevant it is to the one I'm looking at:

I know the negative side to this type of investment is the lack of capital gains you may get with other properties as price is essentially linked to the yield.

They had a similar sale of properties in Liverpool a few months ago and these sold out in 3 days, and these are nearly gone so the demand must be there.

I've checked the location, and its in an area/street already popular with students.

Thanks

[Jumpin]

Who pays the rent? Students or management company?
Is this a limited period guaranteed rent or is this yield based on having the studio full 51weeks a year?
What happens if your unit is empty for the year. Student Management companies work on average occupancies and if a couple of units are empty it's not worth their while to advertise extra if your unit is not full at the beginning of term, so rent needs to be pooled.
Student accomodation has higher than average maintenance issues. Lots of goodies like widescreen TV, computer room gym etc also look good for cash flow (depreciation) but then at some point you will have to cough up for replacements every so often. Also it will have high body corporate fees.
So do your sums very carefully.

[eri]

people who have similar units in auckland seem to be regretting them

do some searching on trademe for unilodge, columbia, princeton, empire

if you ever do want to sell them you may get hit with quite a loss

older office conversions often have higher BC costs which due to the low rentals to attract students eat into profit quickly when the units aren't occupied, like december and jan.

have a look at unilodge's standards of acom. regular is very very bare, luxury almost has enough room to swing a cat and high end has a view but no deck...

maybe these ones are different

[artemis]

Wellington experience. A friend was doing maintenance on purpose built student accom here. The units deteriorated very very fast as the occupants didn't look after them, didn't care, probably first time away from home and no real idea. Owners got sick of the bills real fast and some just let maintenance slide, making the whole situation worse. Maybe student units should have a separate room for mum.

[Flatlander]

Maybe I'm being hopeful but I think these are a different situation.

Firstly, the whole building is rented by an educational institution (a language school has signed a letter of intent for the first year already - with agreed rental levels producing the yield), and they then sublet to their students, so voids arn't an issue. And it is for 51 weeks.

Secondly, supply/demand is obviously the important thing. In Liverpool HMO's (3-5 students being thrown into their houses by private landlords) is no longer possible due to stricter enforcement on this, which means there is far less accommodation options around so most students are now having to look at halls. There's also 3 big Uni's in Liverpool which obviously creates higher demand than many places for student accommodation. I've spoken to a guy from the lettings agency (un biased as not connected to sales) who will be taking these on. He's very confident there won't be any problems with demand due to this and he's been working with the uni's etc for years.

Thirdly, maintenance etc has already been agreed and due to the higher rents that can be got from renting to students (this is the case across the UK) the yield is still net 10%. (Of course I realise this could easily change with costs 'unexpectedly' getting higher than expected).

Also, it will be let to post-graduate and overseas students who do tend to look after places better. Its only 39 rooms with someone onsite to look after it, so I think wild parties and trashing the place seem unlikely.

Maybe I'll live to regret it...I'll report back in 10 years...

A few people have mentioned Australia in relation to this, and the negative results. Is it common for people to be able to buy single units in halls of residence in Australia? Its not usually possible here as they are owned by universities or private institutions and not sold as individual units. That's why this is unusual. I'm wondering if that's why people are negative about it as its been done on a mass scale over there with a resulting over supply.

[eri]

they have signed a letter of intent for 1 yr....

many of the aparts people wish they hadn't bought in ak had guaranteed rental returns for 1 yr.

say $450pw, which covered mortgage, BC, rates etc.

then after 1 yr. they found the true market value of them as a rental was $350pw, which didn't cover mortgage, BC, rates etc.

just saying they may promise 51 weeks now

but then next yr say it's uneconomic and "renegotiate" for 45 etc...

lots of people who bought aparts leased back by hotels, like hertitage farmers in AK, have had similar problems

your call

[JoeW]

Did you have any luck with this? We sell student properties and find it to be a popular investment.

[JM2011]

lack of capital gains

In the present market I'd be more concerned about capital losses. However if you are looking at a long term investment and have access to long term credit at low rates then 10% is a good return however you look at it.

A gymn in a student house - really? Sure there isnt a professional market for this house?

[Flatlander]

Worked out pretty well so far. Been getting the full rent over a year now, so net 10% return (lets face it you won't get that anywhere else these days). Absolutely hands free so I haven't had to do anything.

Capital gain / loss isn't really a concern. In 10 years it will have paid itself off anyway, plus with a yield of 10% its not going to fall that much further in price whatever happens. If it does the yield will obviously become larger, which will just make it more tempting for an investor.

People compared it to Auckland but like I'd said you have to look at each market on its own merits and I don't think this is the same. There is a lot of demand in Liverpool and limited accommodation for students. Plus this is a fairly small place with about 36 rooms, not a huge condo block.

I guess its early days and only time will tell of course, but so far it has gone ok.

[NovInvestor]

Ah Liverpool in Uk, that's a different story.

Student apartments in Auckland New Zealand don't grow in value.

I'm sure UK ones do.

[Bozman]

Student numbers..

No doubt that investment in student accommodation in the UK has seen a bit of a boom in the last few years due to a general shortage of decent accommodation and increasing sutdent numbers. I have bought a couple of places myself and am very happy with the returns I am making. Liverpool is a very good area to invest infor the reasons flatlander explained.
A word of caution however. The massive hike in student tuition fees recently introduced is likely to result in a significant decrease in student numbers over the coming years. University applications are down this year for the first time in many years and I see this trend continuing for some time to come as potential students start to ask themselves if they really want to start their working lives with £50,000 to £70,000 of debt. There will be an inevitable drop in demand for accommodation which, in time, will start to reduce rental yields and make student accommodation a less attractive investment. Of course, if there is a change of government in 2 or 3 years time the tuition fee increases will probably be reversed and student numbers will recover again.

[mattinvestor]

Has anyone here invested into student accomodation or other properties in the Uk from Australia or NZ? Is it even possible?

[decullen]

Good to see somebody who has some positive feedback about these investments. They are great opportunities if you buy in the right area, through the right agent and the right developers.

I work for a company who has worked with some great developers and we have seen a lot of happy investors. We are also different to a lot of the main agents who offer out these sales, as we take responsibility for the ongoing marketing of them to students and this is really the sort of thing you should look for when you are investing.

[decullen]

And just a note on tuition fees...they have hiked, but this has attracted a much higher number of international students who are predominantly looking for self-contained en-suites and studios, which are the general make-up of these units.

[trivelles]

Did you have experienced of this? We sell student accommodation properties and find it to be a popular investment for future.