Student property investment – HMO or PBSA?
Investing in student property can be a profitable and rewarding experience if you know what you’re doing. As with any investment, it pays to do your research and carry out due diligence before you jump in so that you know exactly what you’re getting into.
With student property, there are two routes you can go down. There is the HMO route or the Purpose-built student accommodation route. The attractions of both are the potential yields that you can achieve which can be anywhere between 7 and 11%.
With regards to HMOs, yields are better than your average buy-to-let simply because you have more people paying rent within the property. This is beneficial because, as a landlord, you’re not relying on a specific individual to pay the rent. Usually with HMOs, the landlord will place the students on a joint tenancy agreement so that all the tenants are responsible. It is also normal to have guarantors in place so that the rent can be recovered if any of the students default on their payments.
To maximise the potential of HMOs many student landlords convert living spaces into additional accommodation to attract more tenants. If this is something that you’re considering, then be mindful of Article 4 Direction because some councils require planning for change of use if you’re trying to convert a property into having more bedrooms.
Purpose-built student accommodation is a different type of investment altogether and this sector has demonstrated that students will choose to pay considerably more than HMO for this style of accommodation because of the high-quality specifications.
The PBSA market has grown significantly over the last decade because it offers students a premium living experience that includes rents inclusive of bills, flexible tenancy lengths, professional management, excellent internet connectivity and a secure environment. In other words, everything the modern student requires.
From an investors perspective, PBSA offers a hassle-free, hands-off investment opportunity where there is no requirement to refurbish a property and find student tenants because the student apartments are already kitted out and the management company, for a fee, will find tenants for you.
Location is key
With PBSA and HMOs location is absolutely key. Students want to be very close to campus and where all the action is so if you’re looking to invest in student property you must ensure that it is within easy walking distance to the campus and in close proximity to bars, restaurants, transport, entertainment etc. If it isn’t then you may struggle to get tenants.
Of course, not all students want the same thing. Some students will be okay with fairly basic accommodation whereas others will want higher quality accommodation which is more conducive to the kind of university and learning experience that they want to have.
Easy transition to university life
For many students, their time at university will be the first time that they’ve been away from home for a long period of time and this is where PBSA does have its advantages. Because this will be the first time that they have to pay bills, do their own cleaning, and take on responsibility for their day-to-day living expenses, PBSA makes the transition much easier because rents will be inclusive of bills and the management company will handle any issues that they have. This can be very reassuring for parents when their kids go off to university.