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Student accommodation may not be such a great investment

Everyone has their pet hates, and student houses are mine.

While blocks of student accommodation done on a large scale of between 200 to 400 students at time can be profitable, those who think that they can buy a house near a varsity and make money often come unstuck.

Large blocks of student flats invariably are not only designed to cater for students but are run on a daily basis by a dedicated management team that ensures whoever stays there pays what is due and behaves properly.

If they don’t toe the line, they will be evicted on the spot.

Buying a family home and converting it into a student house is, in my mind, something that a sane person does not attempt.

Firstly, a house is not designed to be effectively a commune.

Garages and lounges, dining rooms, etc, are seldom ideal rooms to house students.

Purely from a zoning point of view, having a student house is tantamount to changing a single-family home into a boarding house at the very least.

The current zoning of the property would not approve such a use.

Banks are not happy to fund student houses and will not be happy when they find out that the family home that they are funding turns out to be a totally different animal.

While, if the owner does not pay the bond, they can take it back and sell it as a conventional house, when it is transformed into a student house it cannot be used again as a family home.

Unlike a few years ago, student housing will only be paid for by the bursary people if it meets certain standards of space per student and provides specific facilities.

These would include WiFi, a desk, bed, side lights and a standard of bathrooms etc.

They also require a level of security and maintenance.

Many student houses do not live up to these standards because of the DIY-type alterations that have been done.

Even such a simple item as a copy of the approved building plans looking somewhat like the building concerned is often a problem.

In practical terms anyway, students are very difficult tenants to have in your investment property. 

Mostly they are just being what they are – students.

They tend not to be very disciplined, don’t like abiding by rules, are noisy, rowdy, heavy on your building and are not known for being terribly good tenants.

Many owners have experienced high rates of damage to their properties.

It is true that a building that is bought in year one seldom keeps its value by year five.

Often owners of student houses have to continually maintain their properties and do a revamp on a regular basis to keep the interior in good order.

Students who fail tend to move out in the middle of the year leaving the landlord without income at a time when fewer students are about.

The result is a loss of income for about six months a year for some of your rooms.

Buyers of student housing have often not had the skills to do accurate calculation of income and costs.

They frequently overestimate the volumes of students looking for residential space going forward.

Sure, students are attracted to newly renovated student accommodation, but tend to fall away as your student house ages. 

Buyers of student housing frequently badly estimate the cost of running these premises.

They take an unrealistic stance on income and expenses assuming higher income and not allowing for the normal costs of running a student house.

First is the cost of buying the property, normally with a bond.

The property is committed to often long before the buyer fully understands the responsibilities involved.

They are prepared to buy a home based on their perception of the value of the income.

Converting a four-bedroom house into a 10-bed student property will result in having to make alterations which require proper building plans and approval.

The plans and approval cost money.

A domestic house will often not be able to receive approval unless it complies with the application process – often meaning that the landlord has to get a building plan for the building.

Also, what will be required with the insurance will be a zoning certificate, and all this costs money. 

On top of the purchase price, the buyer will need to fulfil specific costs of items including beds, desks, chairs, heaters and much more to get approval from the varsity to let them to students. 

Buyers of student accommodation calculate income based on the full number of beds that they can achieve.

While student accommodation is usually full at the beginning of the year, it tends to have a fall-off during the year as students run out of money or fail classes, especially from July until the end of the year.

This could mean a 20 percent vacancy factor for the rest of the year, but without a similar reduction in maintenance.

My personal feeling is that it is difficult to make a real profit out of student houses.

They are expensive to buy and upgrade and the risks are just too high. 

This past year has been difficult for everyone with much student accommodation standing empty.

Also the way of doing business and being a student has changed forever.

It is no longer necessary to physically be present in a lecture hall to have a lecture.

It can be done over the internet.

In my mind, fewer students will attend classes in person and many more students will work from home.

For these reasons, student houses may not be in much demand into the future, but that is my opinion.

  • Mike Spencer is the founder and owner of Platinum Global. He is also a professional associated property valuer and consultant with work across the country as well as Eastern Europe and Australia.

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