Welcome to our second post with tips on what to do when considering purpose-built student property investments.
You’ve likely heard the phrase “if it seems too good to be true, it probably is”, right ? (I could spend a whole book chapter unpacking that piece of received wisdom, in fact I shall do soon – it’s fascinating !).
But objective investment research requires put aside the scepticism as well as any giddy excitement. It’s a stoic activity, but one we all find difficult to some extent, as most buying decisions involve emotion at some level !
When it comes to a passive investment such as buying a student room in Purpose-built Student Accommodation (or PBSA for short), one should approach the claims of the property developer or agent with a curious mind.
Here’s an example: “Fixed returns of 6% for 5 years”. These terms are often offered by the developer as an incentive to buy the student rooms. This is a reasonable idea as it provides some comfort for the buyer whilst the student hall ramps up to speed in the first few years of operation.
That said, these offers are largely irrelevant for well-run new halls, as good student facilities companies of halls built in the right location should enjoy full occupancy at market rent from opening. It can however, mask problems with poor location and bad management
So, as an intelligent investor, here are some key questions to ask yourself:
- is the student hall in the right town or city, and the right location?
- is the student demand there? – some good signs are: investment being made into university facilities and infrastructure; an excess of private student houses of multiple occupation; strong postgraduate programme; growth in local student numbers over the last 5 years.
- looking at similar private or university-run halls in the area, do the rents match the estimates provided by the developer’s estate agent to the investor? Get out the spreadsheet – real numbers reveal the true story!
- does the company set to manage the hall have a strong, long track record of experience with running student halls and advertising them to students to drive the best rents and highest occupancies.
Intelligent investment involves looking beyond the juicy headline figures, being neither carried away by them nor dismissing them out of hand.
Black and white or shades of colour?
Investment due diligence seeks to simply get to the truth and make an informed decision. It’s harder work than just accepting or rejecting the headline figures, but ultimately far more helpful.
At HighGround Property, we operate unusually detailed due diligence on every student hall investment we consider and, as a result tend to reject around 80% of all investments that appear on our desk. Only those that pass our exacting standards are one’s you’ll see from us.
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