High-end luxury accommodation, like student pods, might be nice for students to live in. But do they represent a solid investment for buy-to-let landlords?
University has all changed since my day. Back then it was all about cramming as many students as possible into a house where “luxuries” included a landline phone (if we were lucky) and a black and white portable TV.
These days students expect, and get, a lot more. The past few years have seen massive investment in student accommodation with luxurious developments springing up in student towns and cities across the UK.
Top-end studios are fully furnished with en-suite bathrooms, kitchenettes and wall-mounted flat-screen TVs. Cheaper rooms typically have shared bathrooms and kitchens. It goes without saying that central heating, double-glazing and fast broadband are all included, as are bills most of the time. Gyms, entertainment and cycle storage are all on site.
It’s all a far cry from my mice-infested hovel in a crime-ridden Coventry backstreet…
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Investing in student property
Google “invest in student pods” and you’ll get pages of results offering sky-high rental yields guaranteed for a certain period of time.
Prices appear low compared to flats and houses in similar locations and, even better, it’s a complete armchair investment as furnishing the property, finding tenants, collecting the rent and day-to-day management is all done for you.
Take The Cube Student Pods in Bolton, for example. For £45,950, investors can buy a large, high-spec, fully-managed studio with 10% net returns guaranteed.
Or how about Borden Court in Liverpool? Pods cost £44,000 and investors are promised rental income of £3,040 a year guaranteed for five-years with tenancies fully managed.
It sounds great, so what can possibly go wrong? Well, quite a lot actually.
Student pods – the downsides
The first hurdle for potential investors is financing their student pod. Mortgage lenders generally won’t lend on pods as they’re not seen as individual units and the bank won’t be able to repossess a pod if the mortgage isn’t paid.
In short anyone wanting to invest in a student pod will have to find funds elsewhere.
Next, investors need to think about capital growth and their exit strategy. The long-term trend for property prices is generally upwards, but can the same be said for student rooms?
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The trouble with student pods is only students can live there and your re-sale options will be limited to other cash-rich investors.
Of course, with other types of property investment – flats and houses – you can sell them on to anyone, including first-time buyers and families as well as other investors.
It’s also worth thinking about the finances behind any guaranteed rent. Any guarantee is only as good as the company behind it.
Will the developer be able to meet their obligations if they can’t let the pod? High tuition fees are likely to affect future student numbers and who knows if the institution concerned will continue attracting decent numbers of well-off students?
When things go wrong
Despite investment in student pods being a fairly new concept, there are already a number of horror stories about this kind of purchase.
Many investors have run into problems when the guaranteed rent period comes to an end – and some even before that.
Middle England Developments flogged student pods in Liverpool in 2011 promising 10% yield guaranteed for 12 months. Yet not long after the year was up, rent payments to some investors dried up altogether. Middle England Developments then asked pod investors for a three-month “payment holiday”. It blamed a surge in vacancies caused by tuition fees, a clampdown on foreign students and a wave of development in the city for empty rooms.
Meanwhile in March this year a group of investors brought a winding-up petition against a division of property investment company Fresh Start Living.
FSL Properties Montgomery had developed Montgomery House in Manchester and sold pods to investors. When promised rent payments stopped arriving investors took the company to court, eventually receiving about £131,000 of the unpaid rent – although they say around £200,000 was owed.
What do you think? Would you put your money into student pods? Let us know your thoughts in the comment box below.
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