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Are student houses a good investment or not?

I have touched on this topic before but I feel I should revisit it.

From the outset I must state that I have never advised anyone to buy a house as a student res.

Why not?

Well, the norm is to buy a pretty decent family home and convert it into a student hostel by adding rooms in the lounge, dining room, maid’s room and garages.

Essentially killing its appeal as a normal family home.

Recently, student house owners have had to register with the varsities to enable students with bursaries to stay with them.

Not only do the rooms now have to comply with size and fitting requirements, but the houses have to be zoned/registered with the municipality.

The reason being that these houses are zoned as single-family units and not as boarding houses or blocks of apartments, which is essentially what they have become.

These owners also have to provide a full set of approved building plans.

This can be a daunting and expensive task as municipal plans departments have lost most of the original approved plans.

As a result, most of the alterations that these student house owners have done were done illegally without building department approval.

A large number of these student homes are coming on to the market for resale at prices that the owners think that they should get in order to cover the cost of buying, plus the alterations that they have done and based on the perceived income that they would get from letting rooms out to students.

But here comes the nub.

The unapproved alterations are just that: unapproved.

Whoever owns the property will at some point need to have to tell the municipality about the changes and pay for proper plans to be drawn up and approved.

There is also a strong possibility that where these changes don’t comply the owner will need to have them demolished.

Don’t think that it won’t happen – there is a very strong chance that it will.

On top of that, what was a neat family home when it was bought has possibly been occupied by young students for five years or more.

Students are not known for being the most house proud of people and are usually very hard on any property that they occupy.

Bathrooms are likely to be in rather poor shape as is the kitchen.

Carpets are likely to be worn and dirty.

Fittings tired and chipped.

In other words, the value of the property is likely to be very much less that a normal family occupied house.

Investors in student homes are finding out that it is far from the massive income and investment that it is often calculated to be when buying a student home.

Firstly, students don’t occupy student accommodation for 12 months per year.

They are actually only at varsity from February to November each year, so don’t want to pay for those three months when they are not there.

Students don’t normally have much in the way of funding, so there is a great potential for them to disappear when funds run out.

Typically, in July a substantial percentage of students stop being students for a variety of reasons.

Course failure is a big one but running out of funds is also very common.

Assuming you have a 10-room student house, this could mean no income for 25 percent of the time and 20 percent of the students not renting beyond July each year.

When students disappear in July that means no income on that room from July until the end of January (seven months!).

Many student house owners underestimate the cost of running their student houses.

Rates are likely to be raised far higher than a normal house, after all you are now running a business from those premises and if your zoning is not right you can be charged penalty rates too.

Students won’t look after the house for you – they will just use and abuse it.

Who is going to clean the inside and who is going to keep the garden in good order?

Just taking out the rubbish will require somebody to come and do it – the students won’t.

Students need supervision, which is fine in a 200-student accommodation property but very difficult for an individual student house.

Students are party animals and can be very noisy which frequently disturbs neighbours. 

Neighbours are quite likely to take you to court for noise, dirt, unkempt gardens and much more.

While you can hear I don’t think that student homes are a good idea, hopefully this article will give you a chance to think twice before buying a house for student housing.

  • 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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