Watch any of the popular property development TV shows and you’ll see the same target market being referred to time and again. Every property investor, it seems, is targeting the “upwardly-mobile young professional”. But could we be missing a trick?
It’s not just young professionals who rent from buy-to-let landlords, but indeed a whole range of people. Of these, renting to students has perhaps not had the attention it deserves. This is peculiar when you consider the facts…
Large Student Population
Tony Blair’s Labour government may have received its fair share of scorn in recent years, but one thing they did do was try to enable as many young people as possible to attend university in the UK.
According to HESA there were an astonishing 1,727,895 undergraduate students in the year to 2015. When you add in postgraduate studies that grows to a student population of 2,226,075 people.
Comparing this with historical figures from the ONS we find that student numbers have increased by 72% on the period from 1996 to 2015. That’s a large target audience for any property investor.
Natwest’s Student Living Index found that the most important factors when choosing a university are subject choice and university reputation, rather than proximity to their parental home. Little wonder, then, that 76% of undergraduates chose to move away to university, rather than living at home.
That’s a population of around 1.3 million undergrads looking for somewhere to live each September.
The academic year remains broadly fixed, irrespective of which university is attended. Studies typically start in September time, and carry on through to summer. This means two things. Firstly, student landlords know exactly when they need to have their properties ready for rental (late summer onwards) and they know that once a student rents from them it’s likely they’ll continue to do so for the next academic year.
This can make planning and financial projections much simpler, with a regular turnover of students at standard times of the year. Arguably the fact that many student properties are only rented for 1-2 years also means it’s easier to carry out regular inspections, and to complete any remedial work necessary between tenants.
Lastly, while students historically have been seen as a low-income age-group, the latest statistics suggest that student loans, combined with the “Bank of Mum and Dad”, contribute most money to a student’s finances. This is regular, reliable and predictable money, often removed from the vagaries of the employment market, stock market turmoil and so on.
The National Student Money Survey reports that students are used to paying reasonable rent levels, with 50% of their spending going on rent. This averaged £365 per month in 2014, which multiplied by our estimated student numbers, amounts to an astonishing £5 billion being spent annually on rent by students.
There’s no denying that’s a market worth investigating.
Of course, the obvious question for potential property investors is quite how to break into this potentially lucrative opportunity. Here there are a number of possibilities…
Student properties are no longer the dingy, dirty halls they once were (well, not always, anyway).
Increasing national wealth has helped to encourage students to look for more pleasant dwellings in recent years.
One of the more popular routes into student property investment is to purchase a large house (such as a cavernous Victorian terrace) and then divide it up into multiple flats, or even a single property with multiple rooms for rent.
In doing so, some landlords find that they can earn significantly higher yields than renting the same-sized property to a single family.
Interestingly, a number of property investment firms are actively marketing new-build student properties. These small flats – often known as “pods” – are designed with modern student life in mind.
Light and airy, and built to the latest building specifications, these new-builds can sometime be bought off-plan at a discount, and can offer years of relatively maintenance-free rental income.
Lastly, one can occasionally find existing student accommodation investments for sale. It is not unheard of for these to come with sitting tenants, meaning instant income.
That said, such opportunities tend to be few and far between, as very few landlords are willing to give up their best properties until retirement.
Of all the various options, purchasing a going concern is likely to come with the highest costs.
Whichever option you consider, there’s no denying that a lot of landlords might be missing out on one of the most interesting property investment opportunities of recent times.