looking at buying student accomodatin property

[willb]

Hi Guys

Sorry if this is in the wrong section. please move if needed.

I am looking at buying a house that is setup for student accomodation. 6 bedrooms, 2 bathrooms and 2 living areas. each room has its own agreement. At the moment i am just running the sums and from what i can see it is cash flow positive. which makes me start to wonder am i missing something or calculating something wrong.

asking price - $385000
rental return - $885/w

When doing my sums i also calculated in power, ADSL, water, insurance, rates and RE management fees.

Is there something im missing in my calculations. Also are the agreements just from term to term. i have emailed the agent but i have not hard anything back yet.

Thanks

Willb

 

[Token Funder]

Hi Guys

Sorry if this is in the wrong section. please move if needed.

I am looking at buying a house that is setup for student accomodation. 6 bedrooms, 2 bathrooms and 2 living areas. each room has its own agreement. At the moment i am just running the sums and from what i can see it is cash flow positive. which makes me start to wonder am i missing something or calculating something wrong.

asking price - $385000
rental return - $885/w

When doing my sums i also calculated in power, ADSL, water, insurance, rates and RE management fees.

Is there something im missing in my calculations. Also are the agreements just from term to term. i have emailed the agent but i have not hard anything back yet.

Thanks

Willb

The implications of the material drop in overseas students leading to a glut in student accommodation ?

 

[Propertunity]

.....which makes me start to wonder am i missing something or calculating something wrong.

The fact that most lenders will not lend at normal resi LVRs unless the house looks like a normal resi house when the valuer goes there.

They consider it more a commercial business otherwise.

Also allow for a cleaner for the common areas at least every fortnight.

 

[willb]

Thanks guys for the answers

i had not thought about a cleaner. it is a very good idea.

From what i have seen it looks like a normal house and is valued at a normal house price.

will talk to the agent and the the bank.

Cheers

Willb

 

[Deltaberry]

It's meant to be cashflow positive, otherwise why would you buy it? It doens't go up in value... well hardly. Imagine if it was cashflow negative:

Loss per annum: $10,000
Purchase Price: $800k
Stamp Duty: $80k
Total Cost: $880k

Re-sell value 10 years later: $880k.

Loss = $10k x 10 + $880k - $880k = a loss of $100k over 10 years...

 

[Propertunity]

....otherwise why would you buy it? It doens't go up in value... well hardly.

Yeah sure .....Toormina only tripled its median price from $103K to $329K in the last 15 years.

 

[VYBerlinaV8]

Because these properties can be hard to finance, a lot of investors can't/won't buy them, so you are potentially stuck on the capital growth front. It's exactly the same situation as buying serviced apartments on long term lease (except once they stop being serviced apartments they can jump to residential value).

 

[soyabean]

Please also need to look at the rule & regulation for a student accommodation, and insure it as one.
You may have to register it differently, all the fire & safety requirements (one-off and on-going) are also different.
I am not sure what the rules are where your property is but in Bris if you rent out 5 or more rooms to unrelated people it is not classfied as normal house shared.
In case tenants have accidents or worse, fire, you could be in deep deep trouble if the correct regulations (and insurance ) etc have not been followed.

Good return if all goes well but lots more expenses and effort than normal ip. Yes and also note the slowing down in the volume of overseas students as a lot of trades used to allow overseas students applying for permanent residency once finished are no longer on the list (cook, hairdressing, etc).
Hence past performance may not be a good indication of future one.
Soy

 

[Perp]

You may be able to finance it as a regular house, by the sounds of it, so that's probably not too big an issue.

Adhering to applicable regulations, as soyabean has pointed out, is potentially costly and time-consuming.

With regards to demand from overseas students, I have a student accommodation in central Brisbane and found that 2009 was a bad year, 2010 was so-so, but 2011 was definitely better than either. I would have thought the high $A would have made for a not-so-great 2011, but I filled up in record time, so go figure.

Insurance - not sure whether you got quotes, but generally you can't use "standard" insurance for multiple tenancies; this is a niche and you need specialised insurance which is - you guessed it - costly!

 

[LPP]

If you are using a broker rather than a bank they could probably put you with a lender that is likely top do a desk top val, which may avoid the issues raised w financing.

As far as cap growth, I think I know exactly what type of property you mean and yes, usually they look just like an ordinary house and should increase at the same rate as surrounding properties if can be converted to normal house when you want to sell.

Usually you can re-configure these properties to become a 4 bed, 2 living area home which would appeal to "family" purchasers in the future if you wanted to sell. (That is probably what it was before it was turned into student accomodation)

Insurances etc as people already mentioned are the biggest issue, check how many people you can have in the home and the regs as suggested. I have read many cases of fire in share housing that did not meet regulation, it is a huge risk.

I am not sure who you go to for that advice. Does anyone else know?

Based on similar set ups I have seen, the figures look right to me. Expect to have higher rental vacancy, higher mgt fees.

 

[The Y-man]

Yeah sure .....Toormina only tripled its median price from $103K to $329K in the last 15 years.

But the original post does not indicate where the property is.....

The Y-man

 

[The Y-man]

I am not sure who you go to for that advice. Does anyone else know?

If the property is in Vic, then

http://www.consumer.vic.gov.au/CA25...ouses/$file/Rooming_House_Operators_Guide.pdf

in

http://www.consumer.vic.gov.au/ca256eb5000644ce/page/renting?opendocument&1=910-renting~&2=~&3=~


The Y-man

 

[willb]

Hi Guys

The property is in Boambee. Right next to toormina. I think it was a 5 bedroon house and then they added the extra room. Im not to concerned about the overseas students as we get lots they university is a pretty good one.

I will definatly look into insurance and the regulations of this.

Thanks

Willb

 

[Propertunity]

But the original post does not indicate where the property is..... The Y-man

Boambee did even BETTER. Median in 1996 was $82K, in 2010 it was $532K - so only a 6 fold increase over 15 years.

 

[Sailesh Channan]

There are a few companies that have been recommending properties with yields based on student accommodation in the recent years. I am sure it is working well for many and should prove to be a good strategy long term especially for those that have invested in key inner city locations.

Only concern I have is that you may have periods of vacancy when uni finishes. You may also want to assess the holding costs based on normal tenancy if things don't work out. If it still affordable then it should be a good investment.

 

[Perp]

Only concern I have is that you may have periods of vacancy when uni finishes.

A fair concern, but note that standard in the industry is that leases run February to July and July to February. Demand, even in the last two "lean years", has generally been adequate to keep vacancies around 5%-ish.

 

[BuildingBlocks]

Maybe I missed this in the last page, who will be managing the property?

Either a part time job looking after it by yourself, or you may be slugged with high rates if you get a PM to do it.

 

[Deltaberry]

Boambee did even BETTER. Median in 1996 was $82K, in 2010 it was $532K - so only a 6 fold increase over 15 years.

Certainly not my experience of student apartments (not that I ever bought them). Should've bought some of these, then again 15 years is too hard to compare. Was thinking more last 3 years how it performed vs the rest.

 

[Perp]

Certainly not my experience of student apartments (not that I ever bought them).

An apartment in a centrally managed complex is an entirely different (and less desirable) scenario than owning a property which you control.

 

[cadence]

Is the property really close to a uni? Does the uni have a reasonable number of students?

Based on the very limited information you have provided, I think it's an exceptional investment. I wouldn't worry about lack of capital growth if you can get such a high yield. Even if you have periods of vacancies in some of the rooms, as long as half is tenanted at the time, you will probably still be able to break even. If you end up getting CG, what a bonus.

When you apply for the loan, just apply as if it is a residential property. I dont see why you need to disclose the bit about student accommodation though they will probably work out that you are renting to multiple parties given the high rent.

You may not be able to get landlord insurance to cover every agreement. Some insurers limit numbers of agreements per property. But I'm sure if you are prepared to pay up, there would be some insurers out there willing to take on the risk in exchange for the additional premiums. You should work out the numbers and decide whether to take a calculated risk in not taking out ll insurance.

You probably should manage the property yourself. I know of an owner of a 6br property currently tenanted by about 10 students. She bought the property decades ago so she's probably paid off the mortgage already. She doesn't work and relies on the rent as income. She goes to the property every second day to do some cleaning up. She hardly ever has to advertise for new tenants. When a student leaves, they can normally refer some classmates who would be interested.