Is student accommodation an investment worth considering?
In addition to the traditional, shared student house, many other forms of student accommodation are now available to property investors. These include en-suite ‘pods’ to studio apartment and ‘cluster flats’. Such blocks offer an attractive option to students by including gyms, cafes, high speed wi-fi and communal areas. Further benefits include a concierge and city centre locations or positioning near university campuses.
Developers offer compelling sales pitches to investors promising 8 to 10 per cent net rental yields per year, no costs for 10 years, full legal ownership and professional on-site management teams.
Investors however need to do their homework and uncover the risks that lie behind the glossy brochures. Mortgage lenders are not keen on student pods, primarily because each unit comes with a restricted covenant stating that it can only be let to students. As such, it’s practically impossible to get a mortgage, meaning you will need to pay cash up-front.
Furthermore, if you decide to sell up then you’ll need to find another investor wiling to buy. With so many of these schemes available supply will likely outstrip demand for the search for a buyer could prove difficult.
Even the rent guarantee offered by many developers should come under heavy scrutiny. The companies offering the guaranteed rental yield often have already made a profit by charging an inflated price for the student pod.
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