Student Accommodation Investment: Is Now The Time To Sell A BTL?
On the surface at least, student accommodation investment seems like a great idea. You buy a house close to a university campus, divide it up into separate rooms and then rent it to a bunch of students for a tidy profit. Result! Only is it?
You see, what with the Covid pandemic, the student lettings market hasn't exactly thrived over the past year. No where near as much as investment firms and the media will lead you to believe. In fact, for the majority of student landlords, 2023 has been a struggle.
Let's just say that areas with a heavy student population have been no stranger to a 'For Sale' board, especially since the Stamp Duty Holiday has fueled a spike in demand. Question is though, what happens when this spike ends? And will student digs still be profitable in 2023, and beyond? Read on to find out...
After something specific about student accommodation investment? Or just curious about selling student accommodation FAST?
Here's where to find student accommodation in the UK
Before you even think about selling a student accommodation investment, you need to build a clear picture of ideal your buyer, otherwise how are you going to track them down? Fail to get a grasp of who this is and you could find yourself spending large chunks of time targeting the wrong people. Hardly ideal, particularly when you consider there's only so long before the SDH is phased out, taking the demand of the 'mini boom' with it.
So with this in mind, here's the two main areas where you'll find student accommodation in the UK and why they're favoured by buyers...
Areas of high yield
If there's one thing any investor can't resist it's a healthy yield, particularly if can be attained for a rock-bottom purchase price.
Not that we can blame them, as paying a small amount for BIG benefits seems pretty much like the ideal scenario. Hull for instance, is favoured by investors for this reason, as are cities like Glasgow, Cardiff and Nottingham too.
So, if you're selling a property that sits towards the cheaper end of the spectrum, this is the type of buyer you're after - the numbers guy.
An investor who's looking here isn't likely to be overly fussed about paying a premium. Reason - they're are all about location.
The type that would take a slight hit on yield if it meant they could purchase in a better part of town. Point being that unlike the guys above who're chasing quick returns, these investors are more focused on capital appreciation and a property's overall rentability.
Call them the more timid, but shrewd investors, who're investing for the long run.
The various types of student accommodation outlined
Just like any investment, student accommodation doesn't just come in one type - there's various.
All of which come with their own set of quirks and features, that not only dictate the type, but also the amount of investors who're eager to buy them. It's also a major factor behind the price they're willing to pay too.
So if you're selling student accommodation but having no luck, here's a rundown of the main types of student housing...
Purpose build student accommodation is much like it sounds. That built with the sole purpose of housing students.
PBSAs (otherwise known as pods) are usually sold as part of a block and are marketed to investors on the basis that they'll achieve a guaranteed rent for the first X amount of years. Sounds great, until you realise that to sell a PBSA you need to track down a VERY specific kind of buyer - usually one that's cash-ready and willing to take a risk.
Hence why their value when sold on tends to be far lower than what was originally paid.
FYI: All that really means is that the guaranteed rent promised by the developer is actually paid for by you.
A downside of being overcharged. One of the reasons why even cash buying companies like ourselves won't touch pods.
BTL student accommodation investments
Think of these as your more traditional student let. Essentially a Buy To Let for students, which has been for years, the favoured route for most investors.
Now while these could take any form, from a flat right up to a one-bed house, the most common is a HMO.
Why? Because out of all the student lets out there, they typically tend to deliver the best yield. And that's despite BTL regulations around HMOs becoming a lot stricter over the past 20 or so years.
How much is student accommodation worth?
At the end of the day, the value of student accommodation is much like your normal property - it's only worth as much as someone is willing to pay.
In other words, the secret to getting the best value relies on you tracking down the right buyer. AKA someone who sees your property in its best light and accepts its downfalls. Think of it as property matchmaking if you will.
So to help you find your perfect match, here's a list of qualities that investors use to judge a property's value...
The level of demand
An empty property comes as a financial burden to any investor, so the demand for tenants in the area is going to be high up on their list of priorities.
So, if you're selling a BTL in an area with high tenant demand, then you could expect to achieve a healthy price.
Remember, even sitting tenants are of value to investors (providing their well-behaved of course), so eviction may not even be something you have to do.
The potential yield
In the end there's only one reason investor's dabble in student accommodation, and it isn't as a goodwill gesture. Nor is it for student wellbeing.
You see, much as you'd expect, every investor's end-goal is to multiply their money.
All of which makes any property with a low potential yield worth less, and may even be enough to put them off a purchase full stop.
The amount of capital appreciation
Aside from rental income, any eagle-eyed investor also takes into account how much student accommodation has appreciated, especially if the property's in an area where house prices are particularly high - London, for instance.
Reason being that a 1% increase on a property in London, could bring in as much profit as a 5-10% increase on a property up North (far less likely to happen). So as long a property prices remain on the up, for an investor it's more of a secure investment.
It's use & purpose
A factor not to forget with an investment property is how usable it actually is. If you're selling student accommodation that's got an awkward layout or just unusual, then you're likely to be inundated with offers by investors.
Reason? Student living has changed. Unlike during the 80s and 90s, where students would simply be on the hunt for a room, the modern student is after a whole lot more.
Because the majority of Uni's have since built ultra mod PBSAs, students now look for a well-sized room, take into account how it's furnished and are particularly in favour of en-suite bathrooms.
The amount of car parking
Speaking of the modern student, a lot (especially post covid) are now choosing to use their own car.
Hence why properties that don't provide at least some form of parking, can be at a major disadvantage. As we're sure you know, investors want student properties that are rentable, so if yours doesn't have easy access to parking (or it comes at a cost), then its appeal could plummet. A driveway would of course be major kudos.
Internet and level of tech
Tech plays a significant role in a student's studies, which is why a strong internet connection usually sits high up on a student's list of 'must haves'.
Another one of the hurdles that comes with renting to Gen Z.
Ease of maintenance
With students not being the tidiest of tenants, neither the most clean, if a property boasts low maintenance outside space, investors are far more likely to see the green light.
After all, student accommodation is a hands-off investment, not a bind. So if a student house had a garden that needed regular maintenance, the landlord would probably invest in a gardener just to keep the tenants quiet.
Yet another yield-eating cost that'll cause them to see your property in a less favourable light.
Where it's positioned
It's no secret that students favour convenience, which explains why properties near or on campus are some of the first to be snapped up. In other words, they're in the most demand.
Demand that comes as HUGE value to investors, especially when it can often be the reason tenants choose to re-let the house year-on-year.
Although, it's not just how a property's location corresponds to the Uni that can dictate its value. Access to food, leisure and nightlife also play a large part too.
Pros and cons of student accommodation investment
Just like all investment strategies, student lets have their ups and downs.
Therefore, what any potential buyer is going to do is weigh up the pros and cons - i.e. see how your property can help them maximise the pros and minimise the cons.
So just refresh your memory as to what'll be going through their heads during a viewing, here's a few of both the pros and cons of student accommodation investment...
In other words, both good and bad points to make on a viewing. So think of this as viewing prep.
The pros of student accommodation investment
When it works, the money's good. Profit margins are high and if you create a substantial portfolio you can quickly accrue a sizable second income.
Student accommodation investment is 'hands off', as usually you hire a management agent to deal with the day-to-day upkeep and any dramas.
Students will usually pay the year's rent upfront, which means not only means prompt payments but also relatively low risk.
Students are typically more carefree and less demanding than older tenants or families. All of which makes deal
The cons of student accommodation investment
If your student accommodation investment goes unlet, then it'll start costing you money, as a vacant buy to let is never good news for cash flow.
Students may be less hassle in terms of being picky about condition, however the condition they leave your property in could tip the scales. Students tend to be far more 'hard-wearing' tenants - a polite way of saying that they can leave a BTL in quite a state. All of which can be costly to repair.
The government isn't exactly kind to BTL landlords. Over recent years landlords have seen their tax allowances replaced with watered down tax credits and haven't exactly received an support form the government around the disruption caused by Covid 19. In effect, they've been left to foot the bill.
Out of all the tenants you could pick, students are far from the quietest. In fact, if an area has a large population of local residents, then a rowdy student house is normally not very well received.
Adding value to student digs - how's it done?
If now you've come to realise why your student accommodation investment may not sell, or isn't selling on the open market, then knowing how to up your chances wouldn't be a bad idea.
So before getting irate with your agent or submitting your house to auction, be sure to check out these couple of tips on how to boost your property's appeal on the open market...
Up the number of rooms
The value of a student let is largely determined by the amount of rooms it boasts, as student houses are usually rented out on a room-by-room basis - in other words, a HMO.
So, by re-assessing how the space is divided, you could rework the layout to make best use of a all the space you have.
Something that could enable you to create another bedroom or additional section of communal space.
You could even go to the extent of converting your loft space, or eating some square footage out of the bathroom.
Now of course, there is the cost of these to bear in mind, however if investing a couple of thousand into home improvements can secure you (A) a sale and (B) a higher sale price, then we'd say it's well worth looking into.
FYI: Before adjusting your room sizes, you need to be clued up on the legal regulations that come with adding a bedroom. Discover what they are below...
Factor in an en-suite
While students will suffice with communal bathrooms, there's no getting around the fact that a well-fitted en-suite is far more chic.
In other words, a stand out feature for a student renter.
So as you can imagine, this also makes it a stand out feature for potential investors, especially if few other properties in the area can boast the same perks.
Revert a HMO back to a standard residential
Now whether this strategy works does depend on where your house is situated. If the majority of houses nearby are student houses, then this may not be such a good idea.
However, if your property is a HMO surrounded by residential, then opting for this route could be a wise move. Follow demand and you're likely to make your property more saleable for what isn't actually that big of a cost. Potentially a win-win.
The future of student digs: will values drop?
Now, while we can't say for sure, we'd predict that the future of student accommodation investment isn't all that rosy, unlike how the majority of property investment firms make it out to be.
Well, what with covid, the amount of students physically going to university has fallen quite sharply.
A good handful would rather stay at home and opt for virtual learning, shaving the costs of accommodation completely.
Not great for landlords, but nevertheless a wise move from a student's perspective. Less debt and more flexibility hardly seems unappealing. Not to mention the fact that distance learning usually works out cheaper.
And then even if a student does go to uni, it's not to say that they'll make a beeline for a buy to let.
In fact, they'll most likely favour PBSAs, as they're not only more communal, well equipped and modern, but they're also competitively priced too.
What's more, some include access to state of the art gyms, games facilities and even have built in restaurants and shops. So in many respects, they're a whole lot more than just accommodation.
Therefore, if you're reading this pondering as to whether you should be selling your student accommodation investment, in the case of buy to lets, we'd say yes.
With the amount of big companies now backing PBSAs, we'd even go as far as to say that in terms of student accommodation, BTL has lost its appeal. So now the question is.
How to sell student accommodation FAST
Selling student accommodation isn't easy, as you can probably imagine with low numbers of students and BTLs being priced out of the market by more PBSAs.
Have a house in a student area and it's likely you won't have the desire of homeowners on your side either, as student areas aren't what you'd call the most desirable; they're more hubs for investment than anything.
Ones that in which it's actually quite hard to secure a sale, unless of course they're brimming with demand. So therefore, how do you sell a student accommodation investment fast?
Well, you could of course approach an estate agent, although that'll be a lengthy process, as well as a waste if demand isn't there.
Not only that but it'll cost you a lot too even if you do sell in estate agent fees and conveyancing costs.
Then of course you could chase a quick sale and go to auction, although that's going to come with a large element of risk, as with an auction you're not guaranteed to sell.
Neither do you avoid costs either. In fact, you'll arguably have to foot even more!
Sell through auction and they'll be a marketing fee, listing fee and commission to pay on the sale too, which is typically similar to that of an agent at around 2%.
Or you could avoid doing any of that and sell your student accommodation investment for CASH in just 7-days. Sound appealing?
As an industry-leading cash buyer of property, we can help you do just that.
Our team have over 50 years' experience in buying homes, so you could call them 'we buy any home' experts. What's more, they're also generous too; sell your property to us and we'll even cover the costs of your solicitors and surveyors.
And if all that isn't enough, we're not exactly picky.
We buy ANY house in ANY location in ANY condition. So be your BTL in showroom spec or a tad on the tired side, we'll make you an offer.