“In some of the newest private halls in London, it is not uncommon to see weekly rents of £300 for a room,” says Mark Hutchinson, director of the flat and house share site spareroom.co.uk. “Luxury high-end accommodation aimed at overseas students with money to spend is a very popular market at the moment.” That £300 figure may scare students, but it will whet the appetite of would-be landlords.
Given this cost, many parents with a bit of spare capital toy with the idea of buying their children a property to live in while at university. Then after graduation, the home stays as a buy-to-let investment. It can be a shrewd strategy, financially, and looking like a shrewder one in 2013 than it has in the past. But as with all investments, one needs to look at the area carefully before taking the plunge.
There is no point buying a flat for your children if the market where they are studying is depressed. You will have little chance of making a long-term profit, or generating decent rental income. You need to look at the local student buy-to-let market in its totality.
The more renowned the university, as a rule, the stronger the buy-to-let market. Cambridge students, for example, are not just brainy, but make formidable cash cows. The university is continually expanding, and the population of the city is expected to increase by more than 20 per cent in the next 10 years. As a consequence, the student rental sector is booming.
“Rental values in Cambridge city centre have risen by an average of four to five per cent over the past seven years, while house prices have remained all but static,” says Andrew Tucker, lettings manager at Bidwells. “Investors have been quick to identify the growth potential in a market where the demand for rental properties is constantly rising.”
Nor is Cambridge an isolated case. Oxford also remains another blue-chip destination for the buy-to-let investor, with a steadily expanding student population and easy access to London.
According to figures compiled by spareroom.co.uk, the average cost of student flats and house shares in Brighton has increased by 21.7 per cent in the past two years. In Bath it has risen by 12.7 per cent, and in Bristol by 7.7 per cent. Just find a university beginning with B, it would seem, and you are in luck.
It is not quite that simple, however. In Savills’s latest “Spotlight on UK Student Housing”, Brighton, Bath and Bristol are awarded first-class degrees in a notional buy-to-let honours table. Birmingham and Bournemouth only merit upper seconds. Bangor and Belfast are awarded lower seconds and Bradford a humiliating third. Poor Bolton, barely scrapes a pass.
Overall, however, the student buy-to-let market is buoyant. If you bet in the right place, there are returns to be had. “Following weaker rents during the 2012-13 academic year, we are forecasting total returns of 9.3 per cent during the 2013-14 year,” says Neal Hudson of Savills. That is made up of a 6.3 per cent increase in static net initial yield, i.e. capital appreciation, and a 3 per cent increase in rental income due to increased demand.
But what type of property should you buy? Somewhere classy in a good location that will make your children the envy of their friends? Wrong! The house will become Party Central and be trashed before you can say “short-term lease”.
A functional new-build might be a better option. A no-frills property where herds of students can come and go and their traces can be erased with a lick of paint and some air-freshener.
“Students are keener than ever to find value for their money,” adds Hutchinson. “At the same time, the standards which they expect are on the increase. That is particularly true when it comes to amenities. Any landlord thinking of letting a property that does not have fast broadband will find their rooms hard to shift.”
Hutchinson believes that prospective landlords should house-hunt in the immediate vicinity of a university, not five miles away. This will make it easier to guarantee lets while you wait for the property’s value to go up. Hutchinson counsels against skimping: “Students typically look for furnished houses, with double bedrooms, so they do not have to squabble over who gets the single box room. For properties with more than two bedrooms, more than one bathroom is preferable.”
More than one bathroom? When I was paying £5 a week rent as an Oxford student in the Seventies, the idea of multi-bathroom digs would have been almost unimaginable luxury. But then, other things being equal, students who wash are more likely to keep a house clean, so a second bathroom may make sense.
Britain’s universities are one of our main industries, attracting students and investment from all over the world. Tuition fees have made the market all the more competitive. Property in the best universities will become more and more sought-after. Strike now, and you could end up with an asset that increases in value while it earns excellent rental yields.
Even if your little darling spends more time in the union bar than the library, their time at university won’t have been wasted. Or at least not for you: the caring parent who may also double as a canny landlord.
Study the market
Choose towns where an increase in the student population is expected. It will push up yields. Good options include Norwich, Plymouth and Bournemouth, where new universities have recently been created.
Don’t overlook overseas students coming to the UK. Many are from wealthy families and will pay top dollar for superior accommodation.
Students love to cycle, but also frequently have their bicycles stolen. Bike racks will be high on a list of must-haves for many students.
Don’t try and cram too many students into one property – it is likely to prove a false economy.
Consider letting to postgraduates. They are more mature and generally make better tenants.
Don’t just hope they will look after your property. Pay them occasional visits to help keep them onside.
All students have accidents or slightly wild parties. Full insurance (telegraph.co.uk/directline) will give you peace of mind.
Home from home: case studies
Samantha Whisker, 19, is about to start her second year at Canterbury Christ Church University. Last year, her parents bought her a two-bedroom furnished flat for £215,000 at the Berkeley Homes Kingsbrook Park development.
“When I wasn’t offered any accommodation with my university place, my parents investigated alternatives. They were staggered by the private rental costs, which averaged at more than £500 a month. They recognised the potential to make a lucrative investment as well as relieve me from debt,” says Samantha.
They decided to buy a flat with low-maintenance and running costs. “The development is close to the university, in a beautiful setting. As a serviced building, it feels safe, which is great. When I graduate, we will either sell the property or rent it out depending on the market.”
London estate agents Fraser & Co recently sold 26 units at Cleveland Residences, a 19th-century mansion block in Fitzrovia, within three weeks of putting them on the market. The units were priced at between £535,000 and £680,000.
“The sales were driven by the demand for high-quality pieds-à-terre near London’s leading educational institutions,” says Robert Fraser, the founder of Fraser & Co. “We have been exhibiting developments in south-east Asia since 1995. There has been a lot of demand from buyers in Hong Kong and Singapore looking to buy apartments for their children to live in while at college or university in London. At Cleveland Residences, where all but one of the apartments have only one bedroom, more than 90 per cent of the buyers came from the Far East. Rental yields range from 4 to 5 per cent.”
For sale: great student rentals
Brighton, East Sussex
This one-bedroom third-floor flat is well placed for shops in the 7 Dials and the mainline station. Estimated income of £795 pcm. £195,000,Mansell McTaggart (01273 508955)
Well presented one-bedroom basement apartment, near railway station and town centre. Shared cycle area at rear. Estimated rental income of £900 pcm. £215,000. Carter Jonas (01223 368771)
Iffley Road, Oxford
Attractive four-bedroom period house which overlooks the university sports ground. Roughly one mile from the city centre, it has a rear garden. Estimated rental income of £2,000 pcm. £665,000, Knight Frank(01865 790077)
Mortimer Road, Bristol
This might have a bigger asking price, but it also has seven bedrooms, so room for plenty of rent-paying students. Estimated income of £3,000 pcm. £1.15m, Knight Frank (01173 17999)
Caledonia Place, Bristol
This top-floor flat, in a prime Clifton address, has two bedrooms and a fully fitted contemporary kitchen. Estimated rental income of £1,100 pcm. £295,000, Savills (01179 335800)