MoneyMagpie

Oct 29

How to make money investing in student accommodation (Part 2)

 

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, there are ways to do it without ever looking at the bricks and mortar itself, let alone having to manage it.

If you are interested in buying actual 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 

Edinburgh IQ2_0If the upkeep and maintenance of a property doesn’t appeal to you, you can buy units within a specific student accommodation block which is run by the property developers.

It’s a fairly recent development, but there are now many student accommodation blocks that have been built specifically for students. They’re in places like London, Manchester, Liverpool and other towns 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.

 

 

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To sell your pods you would need to go back to the company that sold them to you. At that point the pods are second hand with no rental guarantees so the amount they will be willing to pay for them will be less than your initial investment, leaving the property devalued.

Another drawback he points out is that, for now, they’re only available on cash purchase meaning you can’t borrow money against 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 be 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 could be paying through the teeth for furnishings that you could actually get yourself a lot cheaper.

Go in with your eyes open 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 

make-money-at-homeAs the influx of student into UK universities continues to rise, companies have risen to meet the demand for student accommodation blocks.

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 companys 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 as opposed to the 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. 

 

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Invest in Real Estate Investment (REITs) 

reitIf you don’t feel like taking a gamble on a specific company, you could put your money in a real estate investment trust (REIT).

We have a whole article on REITs and how to invest in them here so take a look at what they are and how you can buy into one.

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.

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.

 

 

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