The Hotel Investment Company Blog

Student Accommodation Investment Guide

Key Questions You Must Ask – and Answer About that Student Deal

David Burgess, Director, The Hotel Investment Company

With ‘A’ Levels, universities, student fees and student property very much in the headlines recently, we thought we’d offer you a timely guide to investing in student accommodation. Here it is….

Take an overview. First things first, student accommodation remains in the property investment headlines and new projects are appearing on a regular basis. The fees issue has dominated the headlines in recent months and has usually been the first question asked of us by prospective investors. Whatever the rights and wrongs of increasing fees/adding to student debts etc, the reality is that student numbers will be maintained and perhaps still continue to grow. Consultants Knight Frank have gone as far to say that it is a ‘key asset class’ and predict that this sector will continue to flourish.

What does this mean for the individual investor? Are some student accommodation projects more appealing than others? Do some make more sense than others? In a word, yes. There are some projects which, in my view, don’t add up for the individual buyer. New developments, near to former polytechnics, with guaranteed returns – first year only – need extra-careful consideration.

Look at the university. What I suspect we’ll see is that students will perhaps be more choosy about where they apply to; they’ll want the best value for their money. So, when looking at a particular investment opportunity with the fees increase in mind, look at the university itself, its status and its reputation. If universities are going to be in competition with each other for student numbers you want to be near to one that will maintain or increase its numbers. Look, as you would with any property investment, at the location of the properties themselves. How close are they to the university? What about accessibility and infrastructure and the desirability of the locality as a whole. Prospective students will be looking to keep their living costs down as much as possible and travelling costs will be a key element of those costs. Are the properties a new-build property or a refurbished building? This potentially makes a difference in terms of running costs and also for refurbishment costs in later years.

What exactly am I buying and getting for my money? Are you buying a full, self-contained apartment or, as many of them are these days, is it simply a study bedroom with shared communal facilities, e.g. living area, kitchen, bathrooms. What facilities are included? Heating and lighting costs, broadband/wi-fi, security, etc? Again, it is these extras that will help secure maximum occupancy. With the costs of attending university, students will be looking for the best value for money. What returns will I get? Are the returns based on actual evidence? If it is an off-plan project, what are similar properties in the area achieving in terms of rents? Will the addition of this and perhaps other developments effectively lower occupancy rates for each development. Be wary of ‘guaranteed’ returns, these might just be part of the sales package. Guaranteeing a headline figure for the first year sounds great but what will the figure be in the second and third and later years when there is no guarantee?

Look at the finance. Can I get finance? The fact is – and some developers and agents won’t draw this to your attention – it is unlikely that, unless you are buying a fully self-contained apartment which will give you full legal title, there won’t be any finance available. Only fully self-contained apartments will attract mortgage finance. The student ‘pods’ or study bedrooms tend to be just cash purchases. (Of course, there is the argument that borrowing money effectively reduces your returns as the interest on borrowings will cancel out much of what you’d be getting back). Can I resell? In many ways, this is the big question for would-be investors to ask. Your exit strategy must always be part of your decision-making process. To resell a rental property you need the real rental returns, you can’t offer a fancy ‘guaranteed’ figure. Also, what will you be selling? Will you be selling a whole apartment (which you can get finance on) or just a room? In addition, the availability of finance will affect resale prospects.

Remember the bottom line. Student properties have to work on different levels. Firstly, developers have to build properties which meet the needs of today’s students in the best locations. Does the one you are looking at tick these boxes? Secondly, the management company has to offer best value in terms of ongoing service and rents to secure maximum occupancy. How does ‘yours’ stack up in this respect? Thirdly, investors have to be happy with the level of return, not just for the first year, but on an ongoing basis and that their property is being properly maintained and that their investment is viable on a long-term basis. Does your one look likely to achieve these goals? The bottom line is that most don’t – we have looked at dozens and are currently working with only one; a most experienced developer who has individual investors who have invested in their different developments over the past 10 years. Their model works, it’s based in real world figures, and offers investors good, long-term returns.

Find Out More:

You can contact David at The Hotel Investment Company for details of student investing and current opportunities. email david@thehotelinvestmentcompany.com, mentioning this article.

Student Accommodation – Top Marks?

“There’s no denying that the student accommodation market has been one of the most buoyant in recent years, the annual Reports from Knight Frank have been very positive reading. As student numbers have increased accommodation provision has struggled to keep up and it has been left for private companies to try and keep up with demand for good quality accommodation. However, during the current recession bank lending has slowed, which has meant a lack of development finance for new projects. Interestingly though there has been an influx of private investment from overseas to facilitate new development, eg the partnership between the Bahrain based Oasis Capital Bank and student property developer Unite Group. At the same time there has been increasing regulation and licensing in the Houses of Multiple Occupancy (HMOs) market which has resulted in landlords leaving the market and new landlords reluctant or unable to enter the fray.

So far then it was all positive news for the investor. However in this new austerity age we have the new fees increase for students which poses the question – is student accommodation still worth investing in? The answer is undoubtedly yes!

Understandably there has been concern about the impact of the forthcoming fee structure on student numbers but in many ways some basic facts get overlooked in the debate:

Firstly, the fact that demand for university places significantly outstrips supply. In 2010, there were 700,000 applicants for 490,000 places.

Secondly, that these numbers are still growing, the applications in February 2011 were 2.9% higher than in 2010. It is anticipated that there will be a dip in numbers in 2012, but that this will be a one-off and that demand will recover and grow.

Thirdly, that a degree still has value. There are careers that demand a degree and additionally achievement in education means a significant advantage in an increasingly competitive jobs market.

Fourth, that there is a significant gap in supply of good quality accommodation compared with demand, even at the current level of demand. There hasn’t been a corresponding growth in supply compared with the growth of student numbers.

So what will the future bring? The new system will mean that the higher education system is more market-driven, with universities having to be more competitive. They will have to focus on their core tasks, that is teaching and research, and will present a scenario of current university owned accommodation being sold off and privately operated. Student accommodation will therefore increasingly become the preserve of the private sector and private landlords. The Knight Frank Report states that the new funding system allows for a 10% increase in places over the first 3 years. Universities will be free to take more students, thus for courses that are regularly over-subscribed they will be able to offer more places. Thus, the better courses at the better universities could actually see a significant rise in numbers.

So what does this mean for investors? First, for the big players its all good news, the opportunity to partner with our major universities as the accommodation provider. The individual investor still has the chance to invest directly in student accommodation, but maybe the watchword needs to be location (as always). There are a number of ways in which the individual investor can access this market:
-  self-contained, fully equipped apartments in a purpose-built student hall of residence
-  student ‘pods’, (study bedrooms) contained within refurbished buildings with shared communal facilities
-  ready tenanted HMO’s, refurbished specifically for the student market and which come ready tenanted with all necessary licences and certificates, etc. in place.

In my view student property will continue to be a good area for investors and particularly where investors are looking for a passive, hands-off property purchase where their investment will be properly managed by an experienced management company.”

David Burgess June 2011

Happy New Year -wishing everyone Peace, Happiness and Good Health

Jeannie, Nicki, Dave and Richard would like to say ‘Hope this Year’s a great one for You!’ . It looks set to be a rocky road in many ways for the coming couple of years but let’s make the best we can of every positive opportunity that comes our way. Spreading a little happiness sounds good to me…….
On a business level we’ll be bringing you as many exciting new projects as we can – and we’ll be so pleased to hear from anyone who has anything specific they’d like the team here to research and look into…..We’re raring to go and already have a brand new offer in beautiful, UK favourite, Cornwall coming up soon.
Watch this space….!

The Property Investor Show 2010

We had a very successful show and enjoyed meeting everyone who came to see us. We really liked being next door to the Hair Show and even got to collect an award on behalf of our business friends Property Logic, so well done to them!

Were you at the show? How was your visit?

The Property Investor Show…what’s to say?

It’s next week and we’re all set. We’re exhibiting, presenting a seminar and taking part in a panel, plus chatting with lots of investors, developers and colleagues on our stand. Call in and visit us on stand 225 – it’s right by the cafe..very convenient to grab a tea or coffee with  us.

If you can’t make it to the show and have a burning property investment question you’d like the answer to….please post it here and we’ll reply after the show.

Finance…or lack of!!

The progress we have made as a business has been greatly assisted by developers putting together their own finance package for investors. Thus at The Flaxby we have a 70% finance package in place on completion. Also at Raithwaite Hall, 50% finance is available. It is frustrating in this what might be called ‘alternative investment’ market to see excellent opportunities not progressing because of the lack of lending by the banks. I was talking yesterday to a mortgage broker about the student properties at Sheffield, which he knows well. He shared my frustration as in his view these properties are a lot less risky as a lending proposition than conventional buy to let. The reputation and experience of the developer and management company has produced a quality ‘product’ both for the students who rent these apartments, and also for investors who want good, steady returns. Maybe now that the banks are producing profits, we’ll start to see a willingness to lend?

Coming Soon – Some Caribbean Sun

Keep a look out for a new development coming to this site soon. Located in the Caribbean and offering some excellent investment potential.

Purpose-Built Student Accommodation

We think that purpose-built student accommodation offers excellent investment opportunities…here’s why…

• Consistent  yield – up to 6% net currently
• Hands off, passive investment,
• No hassle
• Investors return unaffected by void periods
• Strong rental demand that continues to grow
• Capital Growth with general rise in property values

We’d be interested to hear your experiences, thoughts and opinions. Has it worked for you?

What about the iPad?

The iPad from Apple has an app for worldwide property searching. OPP magazine reported last month that not many agents seem to be taking this up. But what about property investors. If you have an iPad, would you/do  you use such a facility?