How Wise is Investing in Student Accommodation?
The demand for tertiary education continues to grow on a regular basis, yet many campuses usually do not have the capacity to accommodate the growing number of students seeking campus residence.
Most South African students attend our public universities and colleges, and these institutions are trying their best to close the gap between the demand for accommodation on their campuses and the available spaces in the official residences. The only alternative for students is to find rental accommodation close by. Take a look at the universities accommodation rankings.
If you are considering investing in rental property, student accommodation offers a number of returns. Investing in such property can be a profitable venture, and as South Africa is attracting more and more students from all over the world; why not?
WHY INVEST IN STUDENT ACCOMMODATION?
Many investors choose student housing for the yields it produces. Accommodation close to higher learning institutions can pack more income per square meter and also guarantees year-on-year tenants. The demand for student accommodation is much higher than the supply, in turn leaving a huge gap in the market for many investors. Stellenbosch, Grahamstown, Rondebosch, Cape Town (CBD) and Belville are all but a few of the most lucrative areas in the country for investors to consider.
When it comes to student accommodation, usually perfection is not always required, because unlike a family wanting to start a new home, students are aware that they will not be sticking around for a long time, and as such the property does not have to be perfect nor meet stringent requirements, although decent living conditions and affordability are some of the important factors for student renters.
Another advantage of investing in student accommodation includes being able to raise the rent with the market. In turn, 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, but with student renters, the turnover is much higher. The high turnover that comes along with student tenants means that you will be able to re-advertise the property at market-related rates.
TYPES OF STUDENT ACCOMMODATION
There are a number of accommodation options on the market when considering investing purely to host students.
One of the most popular choices is the purpose-built student accommodation. These are managed apartment blocks. As a landlord you would usually have a rental company manage the building/s, meaning that this is mostly a hands-off way to invest in student accommodation.
Flats and apartments are also one of the popular alternatives for student lodging. If you, as an investor, can find a flat or apartment for sale near to a buzzing student area it could be a good investment. In-between tenants at year end, you could opt to rent those apartments on short-term listing sites such as Airbnb to boost your rental return.
A shared house or a House of Multiple Occupancy (HMO) is also a popular choice of investment for student landlords. These are usually larger properties that have been converted into several separate bedrooms and a few common areas. This investment would allow you to maximise your yield, spread your risk, and improve the ease of maintaining the property by having multiple tenants under one roof.
THINGS TO WATCH OUT FOR
Although student accommodation has its advantages, it does come with its own risks as well. Students have a bad reputation in the property market. They are notorious for noise, property damage and other negative actions that in turn show little regard for their neighbours.
You will need to do some serious vetting with your potential tenants and even include some clauses for immediate termination of a lease allowing you to boot tenants who break laws or who receive many complaints. As students also tend to not look after their living environment you could include a routine inspection, or provide a cleaning service once a week/month to help maintain the property.
The high amount of administration that comes with student renters is also one of the disadvantages. While it is great not to be locked-in for a long-term contract with a tenant, this will come with the repeated admin of having to find new tenants e.g. credit checks, contract negotiations, vacancy advertising repeatedly. Depending on the student’s studies, they might stick around for a bit longer, so you may be lucky enough to not have to go through re-advertising procedures for two or more years.
Students also have a unique schedule compared to regular tenants. Students usually go home or on vacations during their university break leaving the property vacant for over a month or two at a time, so you will need to make plans to make sure your property is secure while empty.
Whether you choose to invest in a purpose-built student accommodation building, an apartment or a shared house, note that it will be an investment worth having. You will be guaranteed great returns on your investment and, hopefully, with a little extra effort on your part, a low maintenance plan.
Source – thesouthafrican.com