With the financial climate in Britain in 2019 being heavily influenced by the fact that the country’s impending exit from Europe is looming large, the yields on offer from traditional residential property investment in the UK have taken a bit of a hit of late. This has led to investors looking into other areas of the UK property market for ways to generate a meaningful return on investment.
One of the alternatives to residential property investment that’s gaining popularity is that of Purpose Built Student Accommodation (a.k.a PBSA), as it comes with a number of advantages. In this blog, we take a closer look at the opportunity and why it is that more and more investors are choosing it over what are the perceived traditional routes into owning property.
1. Higher Percentage Returns
Typically speaking, right now, a well performing residential buy-to-let investment is going to offer around 3-4% yield after costs. Obviously, there will be a degree of variation depending on location, but this figure is largely applicable across the whole of the UK. PBSA schemes offer in the region of 10% yield on your investment, which is usually guaranteed for a period of up to 5 years by the developer offering the opportunity.
2. Low Cost of Entry
The government actively incentivises this kind of property investment in the UK, meaning that when you purchase a PBSA property, there is no stamp duty to pay. This can represent a significant saving, as on an averagely priced home in the UK costing in the region of £250k, stamp duty alone would cost the investor around £2,500.
3. A Steady Residual Income
Student rents tend not to fluctuate too wildly, irrespective of where they are in the country and the payments are usually guaranteed by a student guarantor (usually a parent) - so come what may, you’re going to get your rent. What you’ll also find is that when the prices paid by university students are largely uniform across the UK and aren’t affected too much traditional regional rental price differences, which in most cases is good news for the investor.
4. Demand is High
One of the primary reasons why yields are higher with PBSA properties in the UK is that demand is typically higher than supply in university areas. There is a finite amount of campus accommodation and usually even less student accommodation in the local area, so student rents are always going to hold up well when compared to traditional buy-to-let opportunities.
Students will also be drawn towards PBSA, as it’s designed specifically to take care of their needs. From a student’s point of view, those staying in a purpose built accommodation will just pay one monthly fee which takes care of their rent, WiFi and council tax. When you invest in PBSA, you’re not likely to ever be struggling to find tenants.
5. A Hands-off Landlord Experience
When a developer creates a PBSA opportunity, they will normally hand over the maintenance and running of the property to a management company. This means that an investor in this type of property is going to be spared all of the usual headaches that come along with being a landlord.
What you’re left with in this kind of scenario is a steady, residual monthly income with absolutely no stress or hassle and that’s something every UK property investor can get on board with. Unless you have a burning desire to be involved with the day to day running of your PBSA property, you can simply sit back and watch the money coming in each month.
6. The PBSA Not Impacted by Mortgage Interest Relief Cuts
UK landlords are bracing themselves in 2019, as it’s the first year that mortgage interest relief cuts kick in, but it’s not something that PBSA investors necessarily have to be too concerned about. This is because that typically, the PBSA market is a cash-only one, given that the values of the properties used tend to be lower. This means that landlords in this sector aren’t impacted by these changes.
7. Low Maintenance Costs
Whilst no one is going to suggest that having students as residents is going to be free of problems, they do tend to be a lot less fussy about things than residential tenants. And although you may very well be having everything dealt with by a property management company, you’ll still be responsible for certain repairs to be made. Knowing that your property won’t need as much spent on its maintenance is great news, as it can all add up and affect your bottom line.
If you’re considering investing in the UK property market in the near future, you could do a lot worse than invest in purpose built student accommodation. You may have to be someone who is cash rich to take advantage of it as a cash buyer, but once everything is in place, you can look forward to a hassle-free residual income year in, year out.
The high demand for this kind of accommodation is only going to get higher in the years to come, as university admissions continue to rise and with a PBSA property at your disposal, you’ll be in the perfect place to enjoy steady, above-average yields.
It’s certainly something to think about.