Many investors will have been offered the chance to invest in the suite of high-end student accommodation flats being developed around the country and promising a good, and optically, a guaranteed return.
Whilst the numbers offered by many of these types of investments look good and the prospect of having a regular rental income can be equally appealing, I feel that there is one thing that many of us miss out on… what happens after those initial years of guaranteed rents as offered by many of the people promoting these investments?
Think of the bigger picture – let’s say for example 200 pods are built in a good location, and each one attracts plenty of interest from local students –the company selling the ‘pods’ to you will probably have mentioned that they guarantee the rental income for the first decade, they can do this by taking out Rent Guarantee Insurance.
After the 10 years are over though, the pods will not be in the same condition as you have purchased them – wear and tear is inevitable with any tenanted property – and you will be competing for students with another 199 pods that will go on the market at the same time as yours. High supply could inevitably push rental prices down, and should that be the case, what’s your plan B?
If you want a hands-off investment and you decide to go ahead with this sort of property, I’d always recommend having a long term plan in place and also looking at how much selling it could net you, before the guarantees run out.
If guaranteed rent is the key selling point that got your attention, you can always look for an independent property management company that guarantees the rent for you, independently of the type of property.
Personally I’d rather this option – as buying a house / flat of any type is likely to increase in value at a much higher rate than a custom-built pod, whilst allowing you to also benefit from the rental.
If you were solely relying on students in a particular area – what would happen if the university was moved elsewhere? Would a young professional live in a pod? Maybe they would, but you shouldn’t rely just on that.
Referring back to my last article, buy-to-let mortgage rates can be as low as 2.29%, so while many investors are likely to find now an attractive time to enter the buy-to-let market, now is also a time of tremendous economic and public policy uncertainty,
There are endless options, whether you want a hands-off investment or a property you can develop and manage yourself. Do your research before committing and think about the options from the other side.
If you think you have found the right property make sure to: 1) Check the local prices – Zoopla sold section can give you an idea of whether the property is on the market for more or less than what the current local value is; 2) If you are planning to rent it out yourself, make sure you test the market – put an advert out there and see whether you get responses from prospective tenants and how many. As an indication in London generally you would get at least 20 within a couple of days of posting (though I once received 139 enquiries in the first 48 hours!); outside of London the number could be lower, but don’t despair as even as low as 5 might be a good number for your target area.
SOURCE: whatinvestment.co.uk
