In the past few years, investment in rental property has become more and more popular, largely because of the fact returns have been more impressive than in other asset classes. However, even within buy-to-let, there is one branch that has come to the fore particularly as a major player.
Student property investment in the past three years alone has topped £6 billion, with each of the last three years seeing more than £2 billion of investment individually. So why has it been the case that student property has become such a popular asset?
For many, it’s the simple case that there is a chance at achieving higher yields from student housing. The cost to buy is often lower than mainstream buy-to-let, while many students are happy to pay high rental rates. This means student property investors are often able to bring in between six and seven per cent yields, higher than in the normal marketplace.
However, there are other reasons why some choose to invest in student housing rather than the mainstream, most of which tie into the reality that student housing can negate some of the issues that come with traditional buy-to-let.
According to a new report on the rental market in the UK, although landlords are bringing in record returns at the moment, the fact remains that a third of owners are now experiencing rent arrears at some point. The average unpaid rent faced by landlords amounts to £1,649 according to the National Landlords Association.
However, with student property, this is far less likely to happen. Aside from the fact that many overseas students in particular have more money to spend, most students from the UK have their rent paid directly by parents, while others will pay a block payment at the start of a rental period, which means landlords need not worry about rent coming in month to month.
Void periods are the bane of any landlord’s existence, but with student investment, these are far more predictable and easy to deal with.
The majority of landlords will rely on rent to pay at least a part of the mortgage on a property, so when there’s an unexpected period in which the property is empty, it can leave them out of pocket. However, with student homes, demand is high enough that they know there will be someone living there for specified times during the year, allowing them to make plans for times when they know it’s most likely they will have empty properties.
In a normal buy-to-let home, if a property is damaged, the tenant will be likely to call their landlord to come and resolve the issue. However, student homes are, more often than not, a little different.
The majority of student investment these days is in apartment blocks of multiple units. Because of the way these work, landlords can enjoy a passive investment style, where they are not expected to deal with maintenance first hand. In most of these blocks, a management company is involved to take issues on board and resolve them, giving student landlords far less stress and a more hands-off approach to their investment.