Investing in Student Accomodation

What experience have people had investing in student accommodation?

Some figures being quoted to me include a 2 bedroom unit in Brisbane, $170,000 rented @ $270 a week. Another 2 bedroom unit on level 9 in Melbourne for $215,000 rent $300 per week. Agents state tenants are mainly international students and vacancy rates on average are 2-3 weeks every 12-18 months.

Does anyone hold such investments? If so, what's your experience with tenants, repairs and maintenance, vacancy rates, are the rents realistic, is there onsite management and charges, are there cleaning costs, etc.?

I'm guessing some banks may only loan to 50% of valuation on this type of investment.

Any advice would be greatly appreciated.

Thanks,

Dave.

Hi Dave,

Do a search of the archives for "Student Accomodation" - there have been quite a few threads on this in the past year or so. Heres a few of the better ones (the first contains a great post from Peter Noake, who has been featured in API re: renovations/students accomodation)::

http://www.somersoft.com/forums/showthread.php?s=&threadid=5282

and

http://somersoft.com/forums/showthread.php?postid=30927#post30927

Jamie

>>>>What experience have people had investing in student accommodation?

Id aSK HOW LONG DO THEY STAY? ie some do uni couses lastin up to 4 years and some just do short courses startin from a month long. Generally the long term ones have a 3 month break in lectures at xmas and they often go home. If they go home at xmas they will not be keen to sign a contract for this period.

I'd ask why students want to rent these particular units when they could potentially rent others much cheaper - ie are they very close to uni, have internet access etc

Hi David
i was recently (may 03) investigating uni accom - i notice you are in melb. - i spoke to a woman at Monash Uni's caulfield campus who was VERY helpful.

She gave me brochures for 4 different student accom places around the uni and a lot of details about what they like etc. I'd say one of the best things to do would be to talk to her or a similar person where you are thinking of buying and sound them out - this lady gave me about an hour of her time and was excited that she might have another place to offer as they were/are running short (still running short.... i haven't done anything yet )

Another option is having students live with you in your home - they pay around $180 - $200 per week each ( and you can have up to 4), you do cooking etc and have to "be around", but potentially very good. Most of these srtudents are looking for an 'Australian Family' experience, but you don't have to be a 'traditional 2 + 2' family, just as long as you are around at meal time (you have to do the cooking ) and take them on a few outings etc. It's extra work, and you need to do an interview/have a police check etc., but worth the $$ if you are willing to do it.

I actually thought ofg buying a house, offering a young couple 'free' accomodation and in turn they would have to host the students who are paying the rent. If you could find a 5 bedroom house in the right location, you could potentially get $800pw, minus food and outgoings (students pay for phone etc) - may be worth a thought.

If you want more info or to have a chat email me at [email protected]

cheers
ned

David,
I'm just about to settle on two appts at Varsity Apartments on the Sunshine Coast. See www.varsityapartments.com.au.

Price is $203.5K each (+$2K for a/c) and each appt has 4 ensuite bedrooms plus a common area, and includes furniture. Students will pay $120pw per room or an extra $5-10 for a/c.

So that's a possible 12.5% gross return based on 100% occupancy. Realistically this won't happen in the first semester (semester 2 of '03), but I'm hopeful of 100% occupancy through the 43 weeks of both semesters 04. The other nine weeks are available for my own use, or for holiday lets or summer school / short courses.

Varsity is right next to the Uni of the Sunshine Coast which is growing fast. It is a resort with pools / volleyball court / social room / bbq etc. Each bedroom has a broadband internet connection

Outgoings are fairly high (for instance I have to pay electric / phone rental / ISP rental / 9% onsite management), but I would still be hoping to NET 5 to 6% for the rest of this year, and over 7% next year. Plus depreciation of course.

I have looked at some other student accom in Brisbane, but the rooms were tiny (2 single beds in 32sqm, as opposed to Varsity's 4 double bedrooms in 95sqm) and I would've struggled to get finance at 80% which is what I'm just lining up (fingers crossed!).

Regards,
Adam

Hi Ned,

What are the consequences with tax for 'live in students' in your house ?

Re:
Another option is having students live with you in your home - they pay around $180 - $200 per week each ( and you can have up to 4), you do cooking etc and have to "be around", but potentially very good. Most of these srtudents are looking for an 'Australian Family' experience, but you don't have to be a 'traditional 2 + 2' family, just as long as you are around at meal time (you have to do the cooking :eek and take them on a few outings etc. It's extra work, and you need to do an interview/have a police check etc., but worth the $$ if you are willing to do it.

Comment
A room would go for about $100 pw, food would be about $60pw ., leaves 20-40 pw for your effort , cooking, in some situations doing washing, transport , so a person would need to do your sums pretty carefully.

I've had an exchange student living for nix. As a consequence, not a cent claimable- not even for a dependant.

I've found out later that the organisers got paid.

Perhaps I should have asked for a nominal (say $10 pw) payment just to claim legitimate expenses incurred?

Student Accommodation

Hi David,

I am interested to know what you found out in relation to student accommodation. I am currently investigating my first investment property when I came across an apartment for student accommodation near Melbourne Uni for sale for the low 200s and already rented at a very good weekly rate (locked in for two more years). I am wondering what the catch is? Did you find out any information through your investigations?

Regards & Thanks
Nina

Nina

I am still researching the topic.

Some financial institutions will not lend above 60% as they treat them as serviced apartments. Rent returns are good, however there is uncertainty about the duration of leases being from 3 months to 2 years, depending on the length of the course. However, most people tell me there is high demand and although you may have short terms leases, there is another lease waiting in line (I haven't checked this as yet). It may be a case of getting use to and comfortable with 3 or 4 leases over a period, rather than a traditional 6 or 12 month lease on a residential property.

Re units near Melbourne Uni. there is another block of student accommodation under construction on the corner of Swanston and Queensbury streets. This may please you as the developer must be building to cater for demand, or it may concern you re the number of inner city student accommodation becoming available.

Take Ned's advice below and speak with the relevant contacts at Melbourne Uni.

Keep me posted.

Hi will:

What are the consequences with tax for 'live in students' in your house ?

assesable income, which can be offset against expenses of having them - i assume that interest on the portion of the house they use can be deducted also, but in my case no debt against ppor, so not sure on that one

gill bates:
Comment
A room would go for about $100 pw, food would be about $60pw ., leaves 20-40 pw for your effort , cooking, in some situations doing washing, transport , so a person would need to do your sums pretty carefully.

you are correct - would have to do the sums. In my own case, i have a couple of ankle biters, and the original idea was the cultural experience for them, while being paid. I wouldn't normally rent out a room, so (once again in my particular case), there is no opportunity cost. Food does have to be paid for, but if you are already cooking for 4, then a couple of extra mouths is Ok (but you're right - still an expense)

plus you can get them for 1 week or 1 year - your choice. you can 'evict' them on 1 weeks notice (and likewise they can leave of their own accord - 1 week's notice), and you can also set the groundrules. Generally, it is extra work, but if you have a young family, or spare rooms, it can be a relatively safe and easy way of making some extra spending $$

cheers

Ned

Just a small update on the student accomm I'm purchasing on the Sunshine Coast.

I got knocked back for finance through Colonial (even though the valuation came back positive, they viewed it as commercial and not residential), but I'm led to believe Wizard have already approved two loans on Varsity at 80%LVR on a valuation of $195K (ie purchase price minus furniture).

So it is possible to get high lends in this sector, although more typical studio-style accomodation with small floorplans would probably be difficult above 60%LVR, I'd reckon.

Adam

ANother perspective

Today I read an article entitled “The cost of cashing in on the education boom”. It can be found in the “Which Property?” digest, available from their web site www.whichproperty.com.au. In their opinion, student accommodation “does not offer value-for-money nor a superior overall return”. It is one of many opinions and doesn’t make it right, but what the article does do is provide information that I would not have taken into account when considering to purchase purpose built student accommodation property.

Hope this helps with the research.
Chris.
which property?

Re: ANother perspective

Originally posted by ChrisOs
Today I read an article entitled “The cost of cashing in on the education boom”. It can be found in the “Which Property?” digest, available from their web site www.whichproperty.com.au. In their opinion, student accommodation “does not offer value-for-money nor a superior overall return”.

Click to expand...

Hi ChrisOs

I had a look around the site and they are also selling appartments which may mean there advice is not unbiased

bundy

Hi Chris,
I actually went up and had a look at Shafston when it was being marketed as the returns sounded so good. In hindsight I'm glad I didn'y buy in as the rooms were typically around 32sqm. Work out the cost per sqm on that and it comes out closer to a Sydney rate than Brisbane! So it would be highly unlikely that the rooms could be used for anything other than the students on-campus.
At least Varsity is big enough to put to other use if the Uni market ever shrunk. Four-bed / four-bath and only about 7mins drive from Mooloolaba. Xmas holiday lettings are a definte posibility I feel.
Only time will tell if it becomes a good investment, but I've committed to a couple of them, so I must have some faith in the development. Or be incredibly stupid
Cheers,
Adam

Hi Adam,

Sounds as though you have done a fair amount of research. One of the issues I had not considered before reading the article (which you have), is "could the accomodation be used for other purposes". It could be disaterous for investors if a uni closed and the property was not suitable for alternative use.

So good luck with your investment Adam, I hope it works out for you.

Hi Bundy,
You got that in one. They will tend to steer people in the direction of what provides the best returns for their company. It may well be that in 6 months they will come across student accommodation that does meet their investment criteria and then they will be rewording the previous article, which was not recommending the Shaftston complex for investors at all.

Regards,
Chris.

You may be very interested to know that for at least several weeks ( that i have noticed )
Saturdays Brisbane Courier Mail newspaper has had ads for accommodation at Shaftston (on a weekly basis ) for ANYONE. - ie they are not targeting students.

I think the weekly rent they are asking is $300 pw - but this would be casual i assume - ie a week to week basis.

I have not checked , but the obvious assuption is that they do not have enough students who want to rent these appartments.


The test i apply to student accom is
1) what would it rent to locals for.
2) how much are other units of similar construction selling for.

so u can work out what premiun u are paying for the extra return.

A previous poster has mentioned the m2 cost as being a useful comparision. Matausick newsletter also pointed out that Shaftsons m2 cost was comparitevly high for brisbane.

I inspected these apartments when offered for sale,
I also thought that if Uni of New England decided to stop offering courses in brisbane , apartment owners would not have many potential tennants. The strenght of the relationship was not mentioned by the salesman.


Yes uni's, do close campus or just move.
recent examples are Aust Cathloic Uni moved from Mitchelton to Banyo in Brisbane. Years ago , a number of the TAFE colleges in bne where closed due to rationalization.

The student accomadation question reminds me of the problem faced by tourism operators of late. Ie. the tourist operators have set everything up for the overseas visitors and now that these visitors have dropped off some are finding it tough. If student accomadation was bought with the overseas student in mind I would explore the possibility that an overseas students may decide to start studying somewhere else. If this happened would the typical Aust. student be able to afford the accomadation?

There was a articale in the weekends Fin review about costs to uni students in australia. What i found interesting was the comparision of costs for a australian student to study in australia and a australian student to study OS . It mentioned that there are currently 500 aust. students studying in the US - not sure if this per year or on a course basis. Interesting enough , about 90% of the 500 where at one ( prestegious) university .

One part of the articale mentioned , as fees for students rise in aust (gov is increasing hecs fees ) , it becomes more attractive for them to study OS at a prestegious uni to give them an edge in job applications. In the example given, the fee increase for overseas studys was around 20%

Re:
If this happened would the typical Aust. student be able to afford the accomadation?
I think it more whether the students are prepared to pay the higher rate in exchange for the extras - my belief is they would not - with the exception for first year students , who like the turnkey package.