Is student housing a good investment?

Investors thinking about buying property in university cities should consider the many benefits of investing in student housing to let.

According to UK Parliament figures, during the year 2020/21 there were 2.66 million higher education students studying in the UK. Around 30 per cent of those live in private rented accommodation.

Renting to students isn’t for everybody, and it’s important to know the pros and cons of doing so before taking the plunge, but many buy-to-let landlords agree it can be a profitable venture.

In this article, we find out how letting property to students could make you money and whether buying student accommodation to rent is a sound investment.

How does student housing make money?

A student housing investment makes money in much the same way as a standard buy-to-let.

Landlords let out their property to students who then pay the landlord rent to live in the property.

The landlord then usually uses the rent money to pay the mortgage on the property and pockets the rest as a source of additional income.

The two main ways that landlords make money on student housing are through the rental yield and any capital gains on the property.

Rental yield

The rental yield is the percentage of profit that a landlord makes on their rental property. The rental yield is essentially the difference, worked out as a percentage, between the total cost of the property and the rental income received from it.

Rental yield can be worked out by dividing the yearly rental income by the total cost of the property (including any renovations or other costs) and then multiplied by 100. Most landlords aim for a rental yield of at least seven per cent.

Capital growth

Capital growth is the amount that the property increases in value during the time that you own it. You can work out your property’s capital growth with a simple sum. First, find out how much the property has grown in value by subtracting the purchase price from its current value. Next, divide the increase in value by the purchase price and multiply the answer by 100. The figure you get is the property’s capital growth as a percentage.

Is renting to students profitable?

Many landlords find that although renting to students isn’t without its challenges, student housing is often a more profitable investment than a standard buy-to-let.

That is because landlords can usually charge more rent when letting individual bedrooms to students than they can when letting the whole house.

Just how profitable your buy-to-let is depends on the size and location of the property as well as the condition that it is in.

When shopping around for buy-to-let student housing, location is important. The closer the property is to the university campus the better the rental yield tends to be. If a property has extra communal spaces, it can be more profitable to turn one of them into an additional bedroom than keep multiple living spaces.

Pros and cons of investing in student housing

Student landlords can usually take advantage of all the same benefits as those with a standard buy-to-let property.

Although the property market can change at any given moment, property prices have been rising steadily for a long time now. If they continue to rise, then buy-to-let investors could make a tidy sum in capital growth on any type of buy-to-let, including student houses.

The UK’s current housing crisis combined with rising property prices also allows landlords to charge more when letting out their properties.

When deciding whether buying student accommodation to rent is a good investment for you, it’s important to carefully weigh up the pros and cons. Here are some key pros and cons of student buy-to-lets to consider:

Pros:

High demand – There is always a lot of demand for private student housing, particularly if it is located close to the university campus. Student landlords rarely have any problems finding tenants
High rental yield – Because student landlords can charge per bedroom, the rental yield on student properties tends to be higher than for standard buy-to-lets
Affordable properties – Student housing is often located in the inner city and student suburbs where it is usually cheaper to buy property

Cons:

• Requires more maintenance
• Requires a higher level of management
• Reduced or no rent during the summer holidays
• More setup and admin are required to become a student landlord

For further help or advice with student buy-to-lets in Liverpool, get in touch with our experienced team here at Mistoria Estate Agents Liverpool by calling us on 0151 317 5383.

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