Residential property yields have stagnated recently, and with Brexit potentially bringing further uncertainty, investors are seeking yield elsewhere in property to improve ROI.
One of the options to residential property investment that’s gaining fame is that of Purpose Built Student Accommodation as it comes with a number of benefits. In this blog, we take a nearer look at the chance and why it is that more and more investors are selecting it over what are the apprehended traditional paths into owning property.
With over 100 universities in England alone and more modern properties with additional on-campus facilities expected, many investors have turned to purpose-built student accommodation (PBSA) for a safe bet on their money.
The boom of residential buy-to-let saw fantastic yields, but today’s market is very much in favour of the tenant. This has seen average yields offering around 3 to 4%. With plenty of the unknown ahead in the market, this doesn’t offer as much appeal as days gone by. When it comes to PBSA, most investors can expect between 8 and 11%. Developers are understandably seizing on the spike of interest this has brought by guaranteeing fixed periods of this expected yield with the prospect of a no-brainer.
Stamp duty savings
Another bonus for investors to favour PBSA over residential, is government initiatives to incentivise such developments by removing the requirement to pay stamp duty. A residential buy-to-let property purchased for £150,000 brings with it stamp duty of £5,000 (effective tax rate of 3.3%).
Long-term solid income
With an increase in residential tenants seeking shorter terms of six months, the risk of dead money waiting to agree a new tenancy is off-putting in today’s market. With most university courses lasting for three years and high demand for freshers every year, it is unlikely a well-located and managed PBSA will sit vacant. Even over time, investors can still keep an eye on their property in the same way, particularly checking the inventory and ensuring notoriously messy student tenants vacate in the right way. Those investing at a distance across student cities in the UK could use property inventory software such as inventorybase.com to manage this, taking advantage of tech-savvy students approach to communications with their landlord.
No need to micromanage your investment
Any residential landlord will tell you that even the easiest tenants will require an inspection, arranging repairs and various other time-consuming responsibilities. Difficult tenants or properties with more serious issues can be like having a second full-time job! PBSA, on the other hand, is managed and maintained by an appointed company, so all you need to do is check your bank statement once a month to see your returns.
If you’re thinking about to invest in the UK property market in the upcoming future, you could do a plenty worse than speculate in purpose built student accommodation. You may have to be someone who is cash wealthy to take benefit of it as a cash buyer, but once everything is sorted out, you can look forward to a bickering-free remaining income year in, year out. It’s specifically something to consider about.