A Savvy Approach to Student Housing Investment30 08 2018
Creating a strong investment portfolio requires the ability to consider your choices from all angles.
First you must decide about your investment goals and the type of returns you wish to see – that might be short-term gains or slow and steady long-term profits. You must also consider aspects such as the level of risk you are willing to take and the type of investment you would prefer.
The Long-term Perspective
It also requires a savvy approach and thinking outside the box. Our team at Alesco are constantly encouraging property investors to examine their portfolio with a long-term perspective and consider unique angles. That may mean examining market performance over months or years as opposed to assuming that the current market climate is the norm. It also means identifying the gaps in each market to make the most of your returns.
When it comes to student housing investment, there is great scope for opportunity. Investment into student accommodation has increased year-on-year in line with increased demand where supply struggles to keep up the pace.
PBSAs (Purpose Built Student Accommodations) have drastically improved in quality in recent times in order to keep up with demand and high expectations, with huge investments being made into new builds across the country.
More than Accommodation
There is a focus on providing more than just accommodation and somewhere to sleep – health and wellness are increasingly being factored into PBSAs with gyms and multi-purpose social spaces becoming more and more common.
With recent HMO laws making it more difficult for landlords to rent out larger properties, investing into PBSAs represents an increasingly attractive prospect. PBSA yields are around 50% higher than that of residential housing and research shows that students and their families are willing to pay higher rental costs in return for a safe and rewarding living space to complement the overall higher education experience.
As the value of Purpose Built Student Accommodation is primarily valued on income, the high demand also means that this asset class potentially offers two strong income streams. These would come from capital growth (demand) as well as underlying rental value growth to strengthen your investment base.
Buy to Let vs. PBSAs
This is especially true in more expensive cities such as London where private student housing rentals are reaching record highs. Buy to let remains a great option for those seeking to build an investment portfolio but if you’re looking in the more expensive locations, this may become a stretch for start-up investors.
In contrast, PBSA represents an option with safe yields and deliverable capital growth, where the supply and demand scale is consistently tipping in favour of the investor, Another lesser-championed benefit of investment into PBSAs is that you can purchase fully managed investments for a fuss-free choice.
In this case, a complete management service would cover marketing, student management and building operation as well as any maintenance, health and safety requirements to ensure compliance and ongoing successful smooth running of the PBSA to protect your investment.
Now that you know why you should be investing into PBSAs, it’s time to take that savvy attitude we’ve been talking about in order to uncover the locations with the best opportunities.
We would recommend looking more closely at the Northern Powerhouse where cities such as Liverpool are seeing exceptionally high demand with major regeneration projects revamping the face of the city and pushing its appeal as a higher education setting further up the ranks.
Sheffield, too, offers some great opportunities with major PBSA developments currently taking place. As higher taxes and stricter regulations make the traditional property investment route more complex, overseas investors including Singapore-based Q Investment Partners are flocking to the city to make the most of the opportunities available.
It also pays to look at the less obvious high-performing universities – Durham and Nottingham are both strong investment locations without the super-high prices expected around London and surrounds.
We would also recommend seeking investment into areas with a general housing shortage and high private rental prices to mitigate risk and maximise opportunity.
For more information on investing in buy to let or Purpose Built Student Accommodation and how to build up a strong, competitive property investment portfolio, contact our team at Alesco today.