Want 10pc? Try Student Property Investment – Telegraph
Want 10pc? Try Student Property Investment the buy to let property asset that’s got everyone talking!
According to many recent news articles buy to let investors tend to get better returns by renting out to students. In recent years purpose built student housing has become increasingly popular with many of the clients Gower & Mae deal with and these property investments offer a regular source of income to buy to let investors seeking property assets with stable rental returns and good long term income from property.
The article below highlights the attention that the asset is receiving from large institutional investors and city investment funds and further backs up why Buy to Let student property is proving to be a more common feature in most balanced property investment portfolios.
For many, the prospect of a new school term will mean cashing in their savings. But for niche buy-to-let investors, September means a new set of student tenants and a steady monthly income.
Rents increased for the sixth consecutive month in July, up to an average price of £705 – £29 more than this time last year.
It’s likely that rents for students will remain high, predicted David Newnes of LSL Property Services, which conducted the survey. “Demand from thousands of frustrated buyers each month underpins buoyant competition for rental homes, enabling landlords to increase prices,” he said.
All of which is good news for property investors hoping to generate decent returns on student accommodation.
According to Paragon Mortgages, student lets typically outperform the wider market because they are let out on a per-room basis rather than a per property basis, earning landlords an average income of 6.45pc. In contrast, young couples earn property investors just 5.94pc a year.
Nigel Terrington of Paragon said: “Yields are an important component of a landlord’s overall business plan because they give a good indication of the income that the property generates. Of course, returns for many landlords will often be higher than stated yields as these are calculated at the current rental income against the property’s value today, not taking into account capital appreciation since the landlord purchased the property or their loan-to-value.”
Yields also fluctuate dependant on the area in which the property is sited. Central London housing produces the lowest average yield of 5.5pc because of the high initial costs of purchasing property.
The West Midlands has the highest annual yield of 6.5pc, and is home to nine universities including Warwick and Birmingham.
Yorkshire also scores high with an average annual yield of 6.4pc, and a glut of 14 universities including Leeds, York and Sheffield.
Prospective landlords must consider potential income from tenants’ rent and whether they can afford a gap in rental income.
Ben Thompson of the Legal & General Mortgage Club said: “With a normal ‘residential mortgage’ a lender will look at a borrowers’ propensity to repay the loan and pay particular attention to a borrowers’ affordability and employment history.
“With buy-to-let, many of the normal rules apply, however, a lender will pay additional attention to the area the property is in, whether that area is likely to suffer from tenancy gaps and if the property could be easily resold if needed.”
Initial deposits are also higher than required for residential mortgages, as is the rate, due to the higher risk taken on by the lender.
Mr Terrington warned, however, that being a landlord of students was not always an easy income. He said: “On the downside, they tend to require a higher degree of maintenance, so landlords have to factor that cost into their overall business models.”
The alternative is letting someone else manage the students for you.