Jasmine Birtles
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How to make money investing in student accommodation (Part 2)
Emma Oriana Grewal
20th Sep 2019
You don’t have to go through the hassle of actually owning student accommodation in order to make money from it.
As with other property investments, you can do it without ever seeing the bricks and mortar for yourself.
If you are interested in actually buying flats and houses to rent to students, take a look at how to do it in this article.
But if you would rather do it from the comfort of your own armchair, read on…
Invest in units in student accommodation blocks
If getting involved with the upkeep and maintenance of a property doesn’t appeal to you, you can buy units within a specific student accommodation block that are run by the property developers.
It’s a fairly recent development, but there are now many student accommodation blocks, like Vita Student, that have been built specifically for students. They’re typically in large cities like London, Manchester, Liverpool and other places with large student populations.
Certain companies manage student accommodation blocks as investments. As each living pod is designed to follow a specific model, their uniformity provides investors with a guaranteed standard for each unit and a rent guarantee for the first few years, for as little as £40,000.
For example, Abacus Investor is selling such student accommodation in walking distance of the university for £54,950 with a 8% net return assured for five years. Vita Student offers accommodation all over the country and promises a 35% net return based on a guaranteed 7% annual return for five years. They say rental income is contractually insured for two to five years.
Does it all sound a bit too good to be true?
Graham Davidson – the managing director of Sequre Property Investment – cautions that from a financial perspective, one of the biggest problems with student pods arises when you wish to sell them.
To sell your pods you would need to go back to the company that sold them to you. At that point, the pods are without rental guarantees, so the amount you receive will be less than your initial investment.
Another drawback that Davidson points out is that, for now, they’re only available on cash purchase meaning you can’t borrow money for them. For this reason, the entry level price into this market is much higher than a buy-to-let investment.
The truth is you could end up paying a lot of money for the convenience of not having to invest in a buy-to-let directly. You will likely get a lot less space for your money, and furnishing updates could be eye-wateringly expensive.
Go in prepared for high costs if you’re thinking of investing in purpose built student accommodation blocks. Equally, be prepared for the return to drop once the guaranteed period is over. Remember, if it sounds too good to be true, it probably is.
For more information on buying property to make a profit read our article here.
Invest in a company that builds student accommodation
As the influx of students into UK universities continues to rise, companies have risen to meet the demand for student accommodation blocks. In 2017/18, the number of international students enrolling in UK universities rose 3.6%.
Large student-centric companies like UNITE Group (UTG) are publicly listed, thereby making it possible to buy directly into their company.
By investing in the company’s shares, you would be able to invest in student accommodation but only as it relates to the company. You would, therefore, be investing in the potential success of the company (UNITE) as opposed to the student accommodation market in general.
The CEO of Assetz Plc, Stuart Law, suggests another way to support a company developing student accommodation is through peer-to-peer lending. In this scenario you would lend money to a company working on a student accommodation project. This form of retail investments enables the developer to build the property while also ensuring you yield a profit from your investment.
Invest in Real Estate Investment (REITs)
If you don’t feel like taking a gamble on a specific company, you could put your money in a real estate investment trust (REIT).
These trusts will provide you with a platform to place your money as specialist investors decide which developments are most likely to yield high profits.
By choosing to invest in a student housing REIT, you can focus the direction of your investment thereby contributing to the niche market without delving into each company’s portfolio. It could potentially represent less of a risk.
This relatively hands-off approach comes with some downsides. One of the disadvantages to investing through REITs is that the dividend (shareholder’s profit) earned is fully taxed, as opposed other organisations that have to pay lower taxes on their dividends.
As REIT shares reside in the stock market, investing in them does not result in the same diversification of your portfolio in the way that buying a property does.
In order to invest in REITs – which are companies in their own right – you will need to buy shares through an online broker such as Hargreaves Lansdown.
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
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