Should You Invest In Student Accommodation?
Student accommodation can be a particularly lucrative investment. But, you will first need to weigh up the pros and cons.
Published: Friday, May 5th 2017
Investing in property can be a lucrative venture. But, you need to make sure you make a choice that suits you.
Student accommodation, in particular, has become an increasingly attractive prospect for property investors.
The demand for tertiary education continues to grow, but many campuses cannot accommodate all their students.
This is where property investors can cash in on the demand for accommodation. But, doing this does come with risk.
The Pros And Cons Of Investing In Student Accommodation
Here is a look at the pros and cons of investing in student accommodation:
1. Pro: Demand Is Higher Than Supply
“There is probably an element of parental influence in this. Parents feel more in control of their children’s lifestyle in a one-person flat. But, the students themselves are also less inclined to share their space than ever before.”
Birkett expects that investors in student accommodation near UCT, for example, can expect an average gross return of 6%. The average rent for a one-bedroom apartment near UCT sits at around R10 000, making it a high return for investors.
2. Pro: Perfection Is Not Required
Unlike a couple looking to start a family in a new home, students are aware that they will not be sticking around for a long time.
As such, the property doesn’t need to be perfect and meet stringent requirements.
According to Lamundi.com, decent living conditions and affordability are the most important factors for student renters.
Considering students’ reputations, you also won’t want to invest in expensive furnishings.
3. Pro: Raising Rent With The Market
When you have tenants who have been renewing their lease for several years, their rental costs will usually rise lower than the average rent of the area.
This is because tenants generally won’t sign a contract that outlines increases over 10% per year. This despite the rental market growing at an increased rate.
Therefore, the high turnover that comes along with student tenants means that you will be able to re-advertise the property at market-related rates.
You also generally won’t be locked in by rent-control clauses for long periods of time.
4. Con: They’re Students
Students have a bad reputation in the property market.
While you may easily get a quiet, respectful tenant; you can just as easily end up with noisy party animals with little regard for their neighbours.
Students are notorious for property damage, noise, smoking, and sometimes even illegal activities.
You can’t paint all students with the same brush, but you will want to do some serious vetting with your potential tenants.
You should also make sure your lease protects you in case you do get rowdy, damage-prone tenants. Clauses for immediate termination of a lease can be included in your contract, allowing you to boot tenants who break laws, or who receive continued complaints.
5. Con: High Turnover Admin
While it is great not to be locked in for a long-term contract with a tenant, this also comes with the repeated admin of having to find new tenants.
This means credit-checks, contract negotiations, and vacancy advertising will become a regular process you need to go through when changing tenants.
Students may stick around for a bit longer depending on their studies. So, you could be lucky enough to not have to go through re-advertising procedures for two years or more.
However, most students don’t stay longer than a year or so.
6. Con: Vacant Periods
As John McGrath points out, students have a schedule unique to other regular tenants.
When the university holidays start, students tend to go back home, or on vacation elsewhere.
This means that your property can sit vacant for over a month or two at a time.
Besides the security concerns, there are some tenants who will be unwilling to pay for rent in months like December. This means that you will have a gap in rental income.
Securing renewed leases can sometimes convince tenants to pay for months like December and January.
However, you will still need to make plans to make sure your property is secure while empty.