Stuart Law - Student Accomodation has in all!

High yields. Totally hands-off investment. Strong nationwide rental demand. Cash-generative. Student accommodation has it all.

Student accommodation has always been one of Assetz’ primary recommendations to any investor, whether you’re looking to add to your existing property portfolio, or if this is your first ever property investment. Our reasoning for this is quite simple; it’s a low risk, high yielding and totally hands-off investment and our clients have profited hugely over the last five years from following our recommendations in this sector. It is also a sector where Stuart Law, the founder of Assetz, has made significant investments in his own portfolio.

With UCAS reporting that student applications for 2009-2010 are approaching 2.4 million (up 34% from 1996-1997)* and a huge national shortage of student accommodation, this is still a perfect time to take advantage of current investment conditions. With high rental yields (typically between 6-10% gross yields depending upon the property type) and totally hands-off, hassle-free ownership, student accommodation ticks all the boxes.

Still not convinced?

Knight Frank have reported through their own independent research, that only 50% of all students in the UK have access to high-quality purpose-built student accommodation. This figure drops dramatically to 20% when you compare the student/purpose-built housing ratio in London alone**. This means that there are nearly 100,000 students in London who do not have access to purpose-built student accommodation, helping to create a huge demand in a market with very limited supply, ensuring rents remain high and your property stays tenanted.

There are three types of property that Assetz sources for student accommodation:

• Purpose-built student accommodation attracts a higher quality of student – higher rents and overseas students with minimal budget restrictions. These are effectively private halls of residence with rental units of studios up to 5 bedroom cluster apartments.
• Refurbished houses converted to full HMO (Houses in Multiple Occupation) standards. This delivers much higher yields with student use than the same property rented to a single family.
• Individual apartments within blocks adjacent to university campuses. This takes advantage of distressed sale opportunities in the residential market place but utilises the property for student purposes to significantly increase yield.

Other benefits of investing into the student property sector are:

• Cash-positive, long-term investment – typical rents are significantly higher for student properties than a comparable BTL property in the same city. As a result, mortgages can often paid off in 20 years or less from the net rents received.
• More people attending universities, creating a solid and sustainable demand. Student numbers are set to continue to rise in coming years – especially in London which has the most students of any city in Europe and the most international students of any city in the world**. Other cities with large student populations include Manchester, Leeds and Sheffield.
• Minimal voids – tenanted for almost all of the year and you typically know seven months in advance that your property is tenanted for the next academic year due to pre-lettings.
• Hassle-free investment – private halls are managed by on-site management teams who will handle all bills and ground rent, meaning you only have two outgoings: mortgage and management fee.
• Rental income has increased by 5% each year for the past six years in the student accommodation property sector. In 2009, many schemes actually achieved 10% gross rental increases.
• Student property has continued to be one of the most resilient investment sectors in the UK during the economic downturn, with most rental incomes and property values remaining stable or increasing***.
• New build properties available – houses and/or flats, as well as refurbished houses.
• Competitive finance available on all our properties.
• Exit strategies – although we recommend student accommodation as long-term income investment, long-term provable high income on a property makes a property much more saleable. Converted HMO houses can also be converted back for residential use as an alternative. Standard apartments near to university campuses can be sold for traditional residential purposes.
• All of this helps to reduce the risk to the investor
  • * Source: Higher Education Statistics Agency
    ** Source: Knight Frank Student Property Report 2010 (Click here to read the report)
    *** Source: Savills Student Report 2009 (Click here to read the report)

For more information click here.

Off plan investing is defined as buying property from developers before the building is completed, sometimes well before the foundations are laid. Whilst in a poor property market this method of investment is much less used, it is a strong tool for the property investor in times of growth.

This method of buying has been utilised by a large percentage of property investors over recent years to seriously increase their net worth through property investment – so what are the benefits and what are the risks in doing so?

Benefits of Off-Plan Investing :

• Developers will often offer Assetz for Investors a genuine discount in return for bulk purchase of units in a development, particularly if it is early on. They do this as development finance is easier to obtain and cheaper if the development is partially or completely pre sold.
• These discounts provide you, the investor, with a cushion of profit in case of any problems. This additional profit can be substantial - for example if you have put down a 10% deposit and the discount was a true 15% off, then the property is worth 17.6% more than the price you paid – that means you have already shown a paper profit of 176% of your deposit. For example :

Take a discounted £85,000 selling price of a £100,000 property. Your deposit 10% of £85,000 = £8,500, the equity in the property = £100,000-£85,000+£8,500=23,500 – a 176% return on your £8,500!

When completion comes and you put down a further deposit to bring your total deposit to 15%, even if prices have not risen any further you still have equity of £12,750+£15,000= £27,750, a 117.6% return on your deposit! If prices increase even just a little then your profit will be substantially greater due to your geared investment.

• No interest to pay whilst the building takes place, yet if prices are rising you receive this capital gain.
• With deposits often well under 15% at exchange on off-plan developments you have less cash tied up than if you had put down 15% deposit on a completed development.
• No need to find tenants, pay for furniture or pay interest in any void periods.
• If prices fall you have a safety net represented by the amount of the property discount – people buying on the open market would have NO SAFETY NET! A 10% discount would effectively provide you with a 10% market-price-fall insurance policy!
• You can sell on to a buy-to-live owner later on before or just after completion to take out your capital and profit.

Risks of Off-Plan Investing :

The benefits of off-plan investing, taking a long term view, far outweigh the risks – however if you are taking a short term view and intend to buy and sell very quickly then be careful and keep a close watch on the local prices in the area to minimise your risk. In poor or falling property markets off plan investing can be dangerous.

The key problems with off plan investing are related to the benefits. by committing to purchase a property well in advance of its completion you are minimising the outlay to take a stake in the future potential growth. However, if the property market falls over this period you are committed to purchase the property that may be greater than the valuation at point of completion. Whilst clearly financially costly, the solution is to put down a larger deposit and stomach a short-term capital loss before prices recover. If the property purchase has not exchanged then the investor can walk away from the transaction and in all likelihood would only have costs of reservation deposits and possibly some legal and mortgage costs. If the investor wishes to pull out after an exchange than they are at risk of being sued for damages for the loss of profit on the sale from the vendor or being sued for specific performance to complete under the contract by the vendor.

The critical success factors in succeeding in off-plan investing are :

• Obtain genuine discounts or buy in property hot-spots.
• Buy in a rising market ideally to further extend your equity and hence safety margin.
• Buy in good rental locations to ensure your mortgages are well covered to at least 130% at the new valuations.
• Buy in good rental locations to ensure rent shortfalls will not eat into your equity and reduce your portfolio growth ability

For more information click here.

There are many reasons for this strength but the primary one is yet again our old favourite of supply and demand. UCAS confirmed there had been a 10.2% rise in applicants for all UK courses from UK students and an even greater growth of 12.4% in applications from non-EU students. The Eurozone provided a whopping 22.8% increase in applications.

There just isn’t the student accommodation available for these numbers, which is what is driving the new build student sector to grow so strongly and provide such excellent investment returns in both income and capital growth. Capital growth in student accommodation is materially linked to the rental income itself and, with rental income going up so strongly in the face of substantial demand, the capital value of the property rises also.

The really important point to make here is that, whilst the universities are under pressure of funding following the credit crunch and government cutbacks that are planned, it must be remembered that non-EU students pay full fees and it is very likely that non-EU students will begin to make up a much greater proportion of the UK student population over the next few years.

Assetz does not expect student numbers to decline but rather the non-EU full fee paying students base to increase.

Recent market analysis shows that London rents rose 7% last year and non-London rents rose around 5% – interestingly the gross rents on most schemes that Assetz clients have invested in over the last few years are up 10% this year.

Assetz Fund Management division will be launching a student accommodation, private hall of residence investment fund in a few months time that will be available to SIPP/ SSAS and private investors via platforms and wraps.

For more information click here.