Article Summary

Making a property investment into purpose-built student accommodation can seem like an easy way to begin or expand your property portfolio: student buy-to-let investments are often reasonably priced and are advertised as high yield-generating. But are they worth your money? We looked into whether student investments are really as good as they seem.

On the face of it there seem to be a number of positives to investing in a student rental property. In university cities there is a large captive market and demand can be high. University courses typically last around three years and tenants often stay in the same property for the duration of their course. Financial guarantors – usually parents – ensure any missed rent gets paid. But despite these surface advantages, student buy-to-lets are fraught with problems and often not worth the hassle.

Short-Lasting Yields

The first issue is, student pod developers advertise high yields but they do not last long. New, purpose-built student properties are constantly springing up all over university cities, creating more modern, better specification options for students.

Rental guarantees offered by these developers are often misleading and only good for that period. The market rates are found to be much lower than expected once the guarantee has expired. In some cases, the guaranteed rents never materialise at all or don’t last as long as they should.

Purpose-Built Student Properties Are Hard to Resell

Secondly, purpose-built student properties are hard to resell and therefore it can take a long time to get back initial investments. Unlike traditional buy-to-lets, to whom you can sell to the entire market of property buyers, purpose-built student pods are only marketable to cash-rich investors in the student accommodation market. This ensures very restricted capital appreciation on such properties.

The newer student accommodation developments will also seem like more of an attractive investment to this small group of buyers. This creates a lack of liquidity in that these kinds of property investments, resulting in additional stress for property investors trying to sell.

Our Advice

The advice we give our property investors is to first consider residential buy-to-lets. Residential property investments offer similar yields to student accommodation, but have a much higher capital growth and resale value. As well as to other investors, buy-to-lets can also be sold to the wide owner-occupier markets. With a much larger resale market, residential buy-to-lets offer higher liquidity and an easier and quicker sale.

Residential apartments also tend to be larger and are usually one, two or three-bedrooms, rather than the studios found in student pods. This also creates more demand for both tenancies and resale.

If you’re thinking about expanding or beginning your property portfolio, it’s best to start with residential investments.