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Is university accommodation a clever investment?

Investing in student property offers an attractive return, but parents shouldn’t hang around, warns Anna Tyzack.

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With rent for student housing reaching more than £700 per month in university towns such as Edinburgh and Bristol, an increasing number of parents are opting to play landlord. Buying a place for your child to live in while they study not only reduces their living expenses (estimated to be about £12,000 per year by the National Union of Students), but is also an attractive investment, according to Adam Lock of Hamptons International in Bristol, as many parents end up running their student property as a business asset once their child has graduated. ‘If you buy the right kind of property, your child can live rent free while they study, and afterwards you can enjoy rental income and the capital uplift,’ he says. ‘Or you can sell up and use the money to help them onto the London property ladder.’

Recent research from Hamptons International shows that properties in university towns hold their value and are able to recover faster from a housing market downturn than average UK properties. According to the latest figures, if a parent with a child at Oxford University buys a £450,000 two-bedroom property in the town for them to live in while they study, they will generate about five per cent capital growth per annum and more than £30,000 per year if the second bedroom is rented to a friend. ‘If you owned it for four years you would see the value of the property rise from £450,000 to £546,000,’ explains Joost Barnas of Hamptons International in Oxford.

The benefits of owning your child’s accommodation are more than just financial. You – and your child – will have control of the type of property they live in, who they live with and (up to a point) the conditions in which they reside. ‘You can ensure the safest possible environment and make sure it is all kept in good order,’ says Charlie Vaughan-Lee, founder of student letting business, Student Cribs, which rents out more than 170 student houses across Britain.  His parents helped him buy a five-bedroom house in Clifton, Bristol for £310,000 when he was a student there in 2002. He still owns the property now – it’s worth approximately £550,000 and commands a seven per cent annual net yield.

Student accommodation has evolved considerably over the past decade, according to Vaughan Lee. In the past, anywhere dry and warm would do but now Britain’s growing student population expects wifi, double beds and ensuite bathrooms. In every university town, property developers are creating purpose-built modern apartment blocks, such as Mallory House in Cambridge, where studio flats with optional furniture packages cost from £175,000.

The newbuild option tends to appeal to overseas parents who don’t want the hassle of dealing with an older property. ‘Parents can count on the fact that everything will work and the flats will be well maintained,’ says Shonagh Morgan of Savills in Edinburgh, where two-bedroom apartments on the edge of Scotland’s new town in Annandale Street are available from £290,000. For families based in the UK however, freehold student properties are more popular – you have no service charges so returns tend to be better. The more bedrooms you can afford, the better, as you can effectively charge per room, with occupants sharing living space, bathrooms and kitchens. Plus, they feel less institutional than the purpose-built apartments. ‘Students want that feeling of independence and renting their first house with their friends is slightly stolen from them in a large homogenous block,’ Vaughan-Lee says. ‘As with anything, some of the purpose-built blocks are good investments, and some less so – it’s important to pick carefully.’

Towns and cities with more than one university and a high proportion of students living off campus provide the safest student property investments. Research by Savills suggests London, Bristol, Oxford, St Andrews and Edinburgh are first-class investment hubs, while Exeter, Leeds, Cambridge, Plymouth and Winchester fall into the ‘upper second’ category. ‘You’re buying a business,’ Lock says. ‘Ideally you need to be looking for somewhere offering at least a six to seven per cent yield as the returns you make will dictate the price you sell it on for afterwards – the student market is different from the residential market in that respect.’  It doesn’t matter what your student property looks like from the outside, according to Frank Webster, director of student letting specialist Finders Keepers in Oxford. Prices are higher for student homes that could also sell as family houses, so yields drop. Inside though you will need to have a separate bedroom per tenant, and a ratio of one bathroom for every two or three bedrooms. Properties with more than four bedrooms might also need an HMO licence.

Lock, who owns a four-bedroom maisonette in St Andrews, a neighbourhood popular with students at Bristol’s UWE university, advises parent investors to buy the biggest place they can afford, preferably with large, square, light rooms. It should also be in a student area – Jericho for Oxford, Jesmond, for Newcastle University, Clifton or Redlands for Bristol University and Newtown or Marchmont for Edinburgh. ‘Students don’t want to live right next to lectures,’ says Lock. ‘They want to live near where they can shop and party.’

Even though students are only at university for part of the year, they tend to rent properties on a 12-month tenure and new tenancy agreements are drawn up six months in advance. ‘In this respect it is a relatively stress-free investment,’ says Lock. ‘Demand for student property exceeds supply. There is always a race when they go on the market in January.’ 

There are, however, certain pitfalls to student property ownership. Lock warns that the wear and tear is much harder than a standard rental. ‘For a four-bedroom property you have four people using it plus their mates and their boyfriends or girlfriends,’ he says. Properties will need to be repainted each year and carpets, kitchen, bathrooms and furniture repaired and replaced regularly. ‘Be aware that it’s a lot of work that you are either going to have to do yourself or pay someone handsomely to do for you,’ says Lock.

Plus, not all children will relish the role of playing landlord to their friends; there’s a conflict of interest in being both tenant and landlord. ‘It worked out well for me in the end but there were a few horrible situations,’ Vaughan-Lee says. ‘Chasing rent from friends can be tough; when an appliance breaks down or a window leaks you are responsible for sorting it out.’ For some students property ownership can be a distraction from studies, and cause difficult politics amongst friends, he warns.

Frank Webster suggests sensible ground rules are laid out in advance, and the tenants’ parents used as a point of contact. If in doubt, he recommends using a managing agent to act as a go-between.

And while the arguments for buying are strong, the agents agree, that parents should not hang around and need to be canny too. Values of student accommodation may have increased by up to 15 per cent over the past five years, according to data from Student Cribs, which is good for those who have already invested but not so good for parents keen to get on the ladder. It’s important to look at the figures rather than make an emotional purchase, says Vaughan-Lee. ‘Parent buyers are often spotted by estate agents in university towns and end up paying a premium,’ he says.