How to invest in student digs

student-accommodationMore than £4bn was poured into student property in the first six months of 2015 as investors scrambled to get a piece of what has been described as the UK’s best-performing asset class.

But don’t let the strong performance of student property fool you. It’s not a guaranteed success and you still need to choose your investment carefully if you want it to be profitable.

Here are three things to consider before buying a student property…

Location

The old mantra location, location, location is just as true when purchasing a student property investment as when buying any other property type.

It’s easy to assume the much-hyped high performance of the student market is nationwide, but different student markets have very different demand levels, prices, and average net returns.

Even within a given market, location should still be one of the key considerations. Students want well-located properties that give them easy access to their places of study, shops, nightlife and transport links. Properties that don’t offer that all-important mix will underperform compared with properties that do.

Property types

There are a number of different types of property you may choose to invest in within the student market. Primarily, these are:

  • HMOs Houses in Multiple Occupation are family homes in which each student rents one bedroom and they all share the rest of the property. They are in many ways the classic type of student accommodation and can still prove successful, but bear in mind that students’ standards are much higher than they once were so investors should look for higher-quality properties that are well-suited to multiple occupancy. Bear in mind also that you may well require permission from the local council to let a house in this way.
  • Pods Single rooms, perhaps with the addition of a small en-suite, in blocks with shared facilities are a new style of dedicated student accommodation, as opposed to repurposed family housing. Although pods are affordable and profitable in many markets, they suffer from a limited resale market.
  • Student apartments In a sense, these are a step up from pods. They are also located in dedicated student blocks, but rather than sharing essential facilities students have complete, self-contained units. These are popular with today’s increasingly discerning undergraduate crowd, especially with the growing number of international students, and also have more resale potential than pods while still being cheaper to purchase than a full family home.

Finance

To purchase a student property, the majority of investors will need to take advantage of some kind of finance deal. Mortgage lenders might provide credit for an HMO, but they will not usually lend for a purpose-built student accommodation purchase because this is seen as a business venture rather than a property investment.

However, there are often alternative options readily available. Developers or the companies selling the investments often offer their own finance deals, in combination with other perks like a certain period of guaranteed returns. These often offer great value and a cost-effective way to fund your investment.