How to Succeed in Student Property – Tip 5 – Understand about capital growth and exit

As we’ve seen, purpose built student property can offer consistent rental income that buy-to-letters can only dream of – when the right development is chosen and invested in. But the question that so often comes up is …

“what if I want to sell the property later?”

A fair question because unlike with regular buy to let property, there is generally no residential resale market: your potential buyers will all be property investors. This is because purpose-built student accomodation (PBSA) can only be occupied by students – there will be a covenant or equivalent on the property deeds to stipulate this.

Not your regular property market

Without a residential resale market, the future value of the apartment is likely to differ from an equivalent residential development. As the buyers are investors, the property value will be determined in a very similar way to traditional commercial property, where that value is based almost exclusively on the Yield – the achievable student rental income from the property.

This commercial element to the investment is often seen as an advantage over the rises and falls in popularity of the residential property market and somewhat easier to predict on a spreadsheet. For that reason too, PBSA can offer a convenient “hedge” to have inside a traditional buy to let portfolio. 

OK, so more about this “usage thing”…

Only students can live in your property. There are advantages to this occupancy restriction though: officially-designated purpose-built student property is treated as a special case by the UK Government, with potential tax advantages for the owner. For instance it is exempted from the recently-concocted Second Home Stamp Duty Surcharge, which for buy to let buyers with a residential property already, adds a 3% hike on to their SDLT bill.

How to resell your student property

Student hall property has traditionally been the domain of buy-and-hold strategies, and those investors planning to hold their property as an income cash-cow for the long term had not been especially concerned about selling. 

The good news about resale though is that what was once a very niche property marketplace with just a few student developments, has in recent years exploded in the into the most popular specialist property market in the UK. Many estate agents with significant property investor databases now recognise the secondary (resale) market and it is MUCH easier to resell a good student room property.

And a part of that market prefers to buy room in halls with a few years track record under their belt. So provided you choose to invest in the a new-build student hall that ticks all the right boxes, the ability to sell you property on is perfectly possible, with some capital growth to boot.

Many investors have gone on to build substantial portfolios of purpose-built student property and as confidence continues to build on the success of the market this is set to continue.

Growth tips from the trenches

The secret to building any successful property portfolio is doing your research when you buy, and this is especially true of student room investments. So become your own purpose-built student property expert, and learn the right questions to ask the developer before making a decision to buy. Use an agent, broker or consultant with as much experience in this field as possible, and pick their brains mercilessly!

For example our team purchased their first student room investment way back in 2005 when the market was in its infancy. Whether you speak with us, or any other excellent, experienced agent about student property, make sure they’re independent and as unbiased as possible towards the developer or the development. Above all you need to trust that they have your interests at the heart of all they do. 

With our ten years’ experience, we carefully select every development we offer and are beholden to none. If we aren’t 100% satisfied, we won’t offer it, period.

Get the low-down

If you’re looking to investigate more about the benefits of purpose-built student accommodation, then download our handy expert guide today.

How to Succeed in Student Property – Tip 4: Deciding if Student Room investment is right for you..

Student room ownership through Purpose-built Student Accommodation can provide some interesting returns from rental income, but they’re certainly not for everyone.Here’s a handy checklist and some expert notes to help you decide if they’re right for you.

So why not sit down with a nice cuppa or a sandwich at your desk, and ask yourself …

Is hands-free income appealing to me, or do I like to be in full landlord-style control of my property?

For active landlords, managing and improving their properties is part of their “job” and they embrace and on the whole enjoy it.

Purpose-built student property (or PBSA) on the other hand is by necessity managed entirely by expert specialist facilities management companies. Having research the investment, PBSA investors are satisfied that the management company know exactly what they’re doing and to let them get on with it. If you think you’ll have “ants in your pants” at this and would want to be involved in the running, furnishing, tenant finding, refurbishing, then PBSA is definitely not for you – because you simply can’t do that!

Do I have the time to regularly keep an eye on my property or do I prefer to set and forget?

Those with the considerable time and inclination to be a landlord have the choice of whether to spend it on their properties. For those who simply cannot spare the drain of time in their busy lives to run a buy-to-let property portfolio, PBSA probably wins hands-down.

Is my investment background primarily property ownership or mainstream investment such as stocks and bonds or companies?

PBSA In many ways sits between the two. You have the benefit of ownership of physical property assets with the advantage of being able to sit back and enjoy the income. However, property is not a liquid asset like stocks and shares, and your capital is tied up in the asset. Admittedly you can sell the asset but this would take time. So what are you comfortable with?

Am I able to pay for and own the property outright (typically £50k-£75k)?

Off-plan PBSA is predominantly a cash purchase, although we do have access to a lender willing to look at offering a mortgage, subject to status and the PBSA development itself.

Am I looking primarily for income or capital growth?

PBSA should be considered primarily a long-term reliable income generator. As it is effectively commercial property, its value is based on achievable rental income, which will rise steadily with inflation over the years. Don’t expect residential-style price movements (either up or down). As leverage (a mortgage) is not available at purchase, high percentage capital gains should not be realistically expected and will likely not be the key reason you invest in PBSA.

Do I enjoy researching property investments?

    • There is a little more upfront research to do with PBSA that with buying buy-to-let, especially if this area of property is new to you. But as a fully-managed and maintained asset, the rewards of time-saving come quickly.
    • Whether you do or you don’t, seek out a good partner who can help you with your research (it’s what we and other top-notch investment property brokers will do for you). 

Am I willing to retain the asset for at least 5 years?

If you think you may need your invested capital back at short notice, then at this stage of your investment life, direct property investment of any kind including buy-to-let and PBSA, is probably not for you, sorry. Property Bonds may be more suitable though, take a look at our blog topic on that subject.

If you still think you’re the right type of investor for Student Property, take a look through our Student Property expert guide, to discover the strong case for investment…

How to Succeed with Student property – Tip 3 : The subtle art of comparison !

They say that size isn’t everything , but for investors when it comes to student rental income it’s usually at the top of every list. But how can you confidently predict what that income will be from what is currently still a construction site? Fortunately help is at hand…

The vast majority of PBSA on the market are offered to investors “off-plan” which means agreeing to purchase a property before its built and therefore before it has a track record of being a successful student development. The rewards for this include relatively low purchase costs and usually a good selection of student rooms to choose from .. off the plan.

But without a proven income from the development, how can you be satisfied that your investment is going to give you the income you expect and have been “promised” by your sales agent?

The answer as usual is to do your own homework but seeking out the closest established student halls, closest in a number of ways. When choosing your comparisons, consider:

  • Location – proximity to the development you’re considering
  • Age and design
  • Target audience (Undergraduate, overseas, postgraduate)

Often the developer will provide you with a set of income projections. That’s fine, but scrutinise these for accuracy. Ask yourself:

  • Are these sufficiently detailed – is there a spreadsheet breakdown of costs and rental income, or just headline figures with little or no justification?
  • Do these figures come with citations or references to justify them?
  • Can the figures be easily verified?

The more data the developer or agent provides you on request the better: it shows there confidence in their development and their commitment to you as a serious investor.

Where this isn’t immediately to hand, all is not lost. Comparative data can be obtained by desktop searches, speaking to university accommodation offices and speaking to the student management company that has (hopefully) already been signed up to run the development.

Armed with this data and some nifty spreadsheet work it’s then much easier to make your own realistic projections on income and see how this squares with the developers’ own.

When HighGround looks for a suitable student hall to offer our investors, we carry this out as a matter of course, regardless of the volume of figures given to us by the developer. We insist on independently checking every assumption to our total satisfaction before we offer it to our investors.

If it doesn’t stack, we reject the development. But hey that’s just us.

Find out more about why UK student rooms remain so popular with investors. Here is a great introduction, backed up by some solid facts and figures. Download our Student Property Guide today: