Forget your image of the dirty, half-destroyed house from the BBC sitcom, The Young Ones. The student letting market is huge, and growing, so here’s our guide on how to invest in student property.
Modern further education financing means that students in the UK are more diligent than previous generations, determined to get the most value out of their expensive degrees.
And if you’re considering investing in but-to-let property, student property accommodation has some of the best returns.
The Student Letting Market
Though students are a minority of the population in any given town, they’re still a significant proportion of the UK’s population.
Nearly half of all young people now go on to higher education.
There are also large numbers of students from abroad, drawn by one of the world’s most highly-rated and prestigious university systems.
Many first-year students live in rooms owned and run by their university, to smooth the transition to their new life.
After that, most move out of halls. Because of where they’re at in life, the number buying a place to live is minuscule.
That leaves 70% of Britain’s 1.7 million full-time students, all looking for places to rent.
Despite the financial pressure on them, many students will pay more to live somewhere nice.
A fifth of students are so keen on quality accommodation that they’ll pay £160 per week or more in rent.
Student rentals have a high turnover of tenants, with many having to find new residents annually.
But those tenants will reliably stay for 48-52 weeks and you know that there will be plenty more potential tenants next year.
That creates a large and stable market, much of it willing to pay above average rents. So how should you invest in that market?
Know Where You’re Investing
Like any investment, start by doing your research.
Look into the university at any town where you’re planning on investing.
Are student numbers and reports on the university’s quality rising or falling? You don’t want to invest somewhere student numbers are falling.
Look at the student rental market in the town. What sort of prices are students paying for their rent? How does that compare with the prices of houses and student rooms? Which areas already have lots of students and so will draw more?
As important as any of this, check how much purpose-built student accommodation (PBSA) is under construction.
Whether they’re built by the university or private landlords, those accommodation blocks could make a big difference to the housing market once they’re complete.
Once you’ve checked on the university and town, there are two options to choose between.
The first is the traditional approach – buy a house and rent it to students.
This has several advantages.
Most houses can be turned into multi-occupancy accommodation for students, giving you a good return on your investment.
If the house needs some work doing on it, and you’re willing to invest the time and effort, then you might get a bargain on your initial investment.
Houses also have more flexibility. If you can’t find a student tenant, then you may be able to rent the house to other people. Student areas often have a lot of other amenities that draw young professionals.
The downside of this approach is that it needs hands-on management.
You’ll have to deal with repairs, maintenance, finding tenants, and chasing rent.
Going through a letting agency can reduce some of these pressures but not entirely remove them and it cuts into your profits.
Then there’s the threat of losing tenants to the other option – PBSA.
Purpose Built Student Accommodation
Blocks of flats built specifically for students, these buildings have a lot of appeal. The quality of the accommodation is reliable, rooms are often en suite, and some blocks come with extra facilities such as gyms and social spaces.
They have the advantages of living around other students, just like in university halls.
Because they’re purpose-built for students, these flats are well located for universities, so likely to draw plenty of student interest.
They benefit from economies of scale and come with onsite management, meaning that you don’t have to deal with most of the work other rentals provide.
The downside of these newly built flats is that part of their appeal is their current good condition. The inevitable deterioration of time and wear means that they won’t grow in value in the same way as a house.
The quality of the onsite management will make a huge difference to this, so it’s worth researching this aspect before you invest in a PBSA flat.
PBSA is likely to provide a better short-term yield for less effort, but the long-term value may not be as good as a house. Either can provide a good investment if you pick the right area of the right town.
By investing in student accommodation in under-served towns like Bradford, Cardiff, and Leicester, you can gain a reliable source of rental income and a solid long-term investment.