Investing in Student Accommodation: New Risks for a New Market

Student Accommodation InvestmentThe standard of living for young people has risen beyond recognition in only a few years. Small, substandard accommodation no longer suffice for the average student, as both homes and universities foster life in environments with much more than beds, desks and lights.

For as little as £40,000, investors can purchase from developers ‘pods’ — studios in luxurious city centre buildings, complete with gyms, cafés and a number of other modern flourishes. With a ‘rental guarantee’ for a set number of years, businesspeople are beginning to see student accommodation investment as a highly alluring venture.

But, much like every other investment, there needs to be a thorough review of these buy-to-let offers. Investors will identify whether the student accommodation business is the right fit for their portfolios and wallets, after all.

In the case of investing on ‘pods’, people need to be wary of three specific risks:

  1. Borrowed Buy-Ins

Unless you are an investor with at least £40,000 handy, you may find it difficult to enter the business. ‘While not impossible to obtain finance to buy a student pod, it will not be through a traditional buy-to-let provider, so you will not be able to get any of the leading buy-to-let rates’, says Mark Harris, chief executive of mortgage brokerage firm SPF Private Clients.

  1. Expectations

Any person who has dealt with financial transactions long enough knows that they need to take every salesperson’s word with a pinch of salt. The same goes for buying management rights for ‘pods’, especially if developers misrepresent the deal as a ‘hands-off’ investment when in reality, the student accommodation comes with zero management on their end.

  1. Abandoning the Investment

If an investor realises that they may not be willing to commit to student accommodation long-term, their best bet would be to sell to another investor. It is highly unlikely that developers will allow them to sell the ‘pods’ like any other piece of real estate, which can quickly turn exit strategies into toxic revelations.

Countless investors are now looking to take advantage of this newest step towards layman luxury, but they should understand the risks of going after a business that emerges in such a spontaneous manner.