Student property investment?

JohnLock

I have £90k savings to invest.

I am researching into investing in student property.

To buy two student apartments for £40,000 = £80,000 total. Buy in good location i.e. Bristol, Leeds Birmingham. New build, clean, efficient. Go to a big city where the demand for new, modern, clean student apartments is high etc.

Give annual return of around 8% combined = £7,000 net profit (after fees deducted).

Plus returns on the apartment when I sell it, if property prices increase.

So, overall, this seems like a very good investment opportunity, with minimal risk, unlike investing in stocks and shares.

Only risk I can see is property prices decreasing, meaning I end up selling the apartment for less than I bought it. If demand is there, it should sell easily. Thoughts?

Advice appreciated.

Thank you.

Clive_Woody

New build student apartments for £40k a piece sounds like a bargain. Is this an "opportunity" someone is trying to sell you?

Mr.Generous

How much per year are repairs for student damages?

p00hsticks

https://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10852153/Student-digs-offer-a-harsh-lesson-for-investors.html

JohnLock

Mr.Generous wrote: »

How much per year are repairs for student damages?

Well the problem that might happen is that I buy a new build student apartment, then over the next 4/5 years, its value actually goes down because it is getting more and more 'damaged' and 'worn out' by the day to day wear and tear. This might offset any potential gains of increasing property price.

Then on top of that, there seems to be a constant increase of these new build apartments coming onto the market, so at the time when I sell the apartment, there will be less demand (because of the newer and more desirable apartments that have been built since I bought mine), meaning I actually sell the apartment for a loss based on initial price paid. Basically, this new build apartment that was all shiny and attractive, just becomes junk and valueless over the investment period.

So, good question to ask the estate agent is how much apartments were bought for, and how much they were sold for, and did the investor lose or make money, on average?

Thoughts?

JohnLock

p00hsticks wrote: »

https://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/10852153/Student-digs-offer-a-harsh-lesson-for-investors.html

Funnily enough, I've already read that. The issues that article raises seem quite negligible. Talks about management and development issues. If you choose wisely, by going for a popular investment and reputable company, those issues shouldn't be worth worrying about.

It's actual supply/demand and depreciation problem that I'm worried about, which I've wrote in my reply above.

AnotherJoe

If the return is so high and so certain they can guarantee it, why are these companies selling the flats to "investors"?

Why not run them themselves, they'd have economies of scale so could do it more efficiently and cheaper than single investors, and they'd keep all the fabulous profits for themselves.
Or to put it more simply, there's a some very high risk going on if someone offers 8% guaranteed because why dont they keep such a fantastic return to themselves.
And as you'll have read in that article a number of those companies have gone bust / not met the guarantee.
And finally, whats the exit strategy? In 5 years if you wish to sell up, who would buy such a property except at a very large discount since if its 8% guaranteed new, who would buy your old one that needs a costly refurb except at massive discount to the original price. And it will certainly need a refurb after 5 years of student living !

So, say it is 50% discount,seems reasonable since no rental guarantee plus cost to refurb, then over 5 years you'd have got back 8%x5 years =40% of your own money plus 50% purchase price, eg 90%.
How about you give me £100k and in five years time I'll give you back £90k. Deal?

Thrugelmir

JohnLock wrote: »

If you choose wisely, by going for a popular investment and reputable company, those issues shouldn't be worth worrying about.

It's actual supply/demand and depreciation problem that I'm worried about, which I've wrote in my reply above.

The reputable end of the market is more likely geared towards insitutional investment than selling individual pods. Expensive business model to sell individual units at £40k a time.

Aretnap

Talk of an 8% return is an immediate red flag, because this is the return which is always promised by scam pseudo-investments. Examples include junk minibonds

https://forums.moneysavingexpert.com/discussion/5346049/london-capital-and-finance

Airport parking spaces

https://forums.moneysavingexpert.com/discussion/5756479/car-park-investment-is-it-a-scam&highlight=park+first

Storage pods

https://forums.moneysavingexpert.com/discussion/3866319/store-first&highlight=store+first

And holiday lodges

https://forums.moneysavingexpert.com/discussion/5100470/dream-lodge-group&highlight=park+first

All of the above ended very badly for the investors involved. Nothing you have said leads me to believe that the business model behind your investment is any different.

(I could also add hotel rooms, 'sustainable'forests etc, but there's a limit to the number of threads I fancy digging up and you get the general idea)

The reason why they all offer about 8% is nothing to do with the inherent return on the investment (which is likely much lower) - but because that is the level which brings in the maximum number of suckers. Offer a much lower return and people don't see why they should take their money out of the bank. Offer one which is much higher and even naive investors start to think it must be too good to be true. 8% seems to be the sweet spot where greed and gullibility intersect.

If someone if offering you a “guaranteed" return of 8% that's an even bigger red flag. Nothing is guaranteed except death and taxes. In the respectable world of regulated investments even people selling government bonds are not allowed to call their returns guaranteed, even though they are the safest investment it is possible to make (their returns, at least if you hold them to maturity, are a close third behind death and taxes). Once you step outside the world of regulated investments you are in the wild west, where where sharp suited salesmen with glossy brochures can throw around guarantees with like a dodgy used car salesman.

If you do invest here's the most likely scenario. You will be paid your 8% for a couple of years. After that returns will dry up. The actual market rent for the accommodation will be lower. There will be periods, perhaps long periods, where the pod is unoccupied and earning nothing at all. There will be maintenance fees to pay (students make poor tenants -lots of parties, not much cleaning). There will be tenants who don't pay their rent (ditto). There will be high management fees (you will probably find that the terms of the contract make you effectively a captive market for the management firm). If you try to sell the pod you will not be able to - as the Telegraph article implies there is no individual market for these things (unlike proper flats), so they don't really have a market value as such. If the seller has promised to buy it back after a certain period, this promise will not be honoured - the company behind the promise will have been wound up by then.

If you really want to be a student landlord, find a nice flat in a studenty area, get it as a buy to let, and rent it out to student types. If that sounds too risky, or too much work, ask yourself why someone else is offering to do all the work, take on all the risk, and still pay you more than you'd earn by doing it yourself. That would definitely be in the too good to be true category.

Aretnap

JohnLock wrote: »

To buy two student apartments for £40,000 = £80,000 total. Buy in good location i.e. Bristol, Leeds Birmingham.

And another thing!

Someone is offering you student flats in Bristol, Leeds or Birmingham? All at the same price of £40K? Isn't that an alarm bell? I mean, every other type of property price varies enormously across the country - so why not student digs? If someone is offering you flats in a range of locations, all at the same price, that implies that the price has nothing to do with the actual market price of the property in question, and everything to do with how much they think their customers can be persuaded to part with.

A bit like the airport parking firm, which charged suckers investors £25K for a space, regardless of whether it was at Gatwick (one of Britain's busiest airports, in an area with some of the highest land prices in the country) or at Doncaster (a runway in a field near, erm, Doncaster), and offered the same 'guaranteed' 8% return either way, Apparently investors didn't think that this was at all odd.

AnotherJoe

Great analyses Aretnap. There's another potential issue here which the owners of storage units at least have encountered, which is after the owners have gone belly up, or even before that when the "interest" (aka your own money being returned to you slowly) stops, you are still liable for all sorts of management fees, council taxes etc etc. So you are not only lumbered with an unsaleable worthless asset, to add insult to injury you still have outgoings on it!