Student accommodation is not what it used to be. It seems that gone are the days of mass-communal kitchens, bathrooms which don’t bear thinking about, and beds with roll-matt mattresses which are dwarfed by standard-sized bedding.
“Luxury” student digs are now popping up all over the country, providing accommodation of a spec – and with mod-cons – which surely the majority of students could only dream of affording. One new development in the heart of Manchester is offering students refurbished warehouse apartments with facilities which include a cinema room, bowling alley, karaoke room, study centre and a gym. It appears that these luxury developments are targeted at wealthy international students, with British residents often being in the minority.
With rents in Manchester reaching up to £240 per week for a one bedroom flat, and in some cases a “rental guarantee” of seven percent, it’s easy to see why student accommodation is becoming a hugely popular market for investors, with £6 billion being pumped into the sector last year. But is investing in student accommodation really the golden-goose it appears?
Investing in student accommodation is, on paper, an extremely attractive move for many investors. It can require as little as a £40,000 initial investment and subsequently requires little or no input down the line when a management company takes responsibility for upkeep.
However, the minimal initial investment may be for a reason. Purchases are often made off-plan, which always carries risks as you can never be 100% sure of what you are buying. You must also ensure that everything you would expect to be included in the purchase price is included to avoid being stung for “extras” down the line. Buying off-plan also throws up financial challenges, and many of these investments will need to be bought with cash, as mortgages can be hard to come by. Any rental guarantee should be treated with caution – as with any guarantee, it is effectively only as robust as the person giving it.
Beware as well of “efficiency savings” on construction – are the properties as high a specification and finish as they first appear, or have corners been cut along the way? You must always have one eye to the future as to the likely increase or decrease in value of your property. On a similar note, be aware that when it comes to walking away from the investment, the only purchasers likely to be interested in your property are fellow investors.
Of course, it’s worth thinking about who is going to be living in your property. Whilst these properties are aimed at wealthy international students, the students are often undergraduates who are not renowned for being particularly house-proud or for leaving properties in immaculate condition. Likewise, you must ensure you have adequately researched the developer behind your property – do they have the background and skills to cope with managing a student development? Careful management is likely to be crucial to ensuring your property retains its value and rent-return in the years to come.
Once you’ve navigated your way around the potential pitfalls above, one final obstacle may threaten to upend even the best laid plans. From April, changes to Stamp Duty mean that you could be stung hard when you invest in a buy to let property. An extra 3 percent is being added onto each SDLT band rate, including a 3 percent rate on the previously SDLT exempt band below £125,000.
All in all, the boom in student property investment looks set to grow in the near future, and can often yield large returns with minimum input, provided adequate research and care is taken at the initial stages.