Mark Robinson, managing director of Fraser Morgan, explains why Purpose Built Student Accommodation (PBSA) is an increasingly popular investment option, and reveals the drivers behind the phenomenon.
- Demand for PBSA is outstripping supply
The supply of university accommodation simply can’t keep pace with demand for new student housing. This has created shortages of rooms in many towns and cities, some of which have two universities.
PBSA is also in demand because it’s purpose-built and presents a straightforward proposition to students: a single monthly payment covers their rent, WiFi and council tax. The upshot is that PBSA investors have no problem finding tenants.
- Hands-off approach reduces landlord stress
PBSA investors can avoid the usual headaches of being a landlord. Why? PBSA developers typically outsource maintenance and management to a specialist property company.
This means the investor gets a reliable and predictable monthly income stream, with no strings and no hassle. You can just get on with your life while the cash flows into your bank account.
- Students mean low maintenance costs and guaranteed payments
Having students living in your property won’t be problem-free, but as a group they are much more easy-going than residential tenants. Even if everything is handled by a property management company, you’ll still need to ensure certain repairs are carried out. Nonetheless, your maintenance bill is likely to be significantly less than a conventional residential letting – which boosts your bottom line.
It’s also worth keeping in mind that student payments are normally guaranteed by a parent (or student guarantor) which means your rent will be paid regardless.
- Your percentage returns will be greater
In the current market a strong buy-to-let investment in the traditional residential sector is generating in the region of three to four per cent net yield. Although there are some regional variations, this figure pertains fairly even right across the country. By contrast, PBSA investments typically create an eight to 10 per cent yield. Better still, developers usually guarantee this level of return for up to five years.
- PBSA offers tax breaks that can save substantial amounts
Because PBSA is classed as commercial property, there’s no stamp duty taxes on purchases of less than £150,000. Just how much you can potentially save is illustrated by the average price of a UK home, which is £250,000 and could involve a stamp duty cost to the investor of £2,500.
Added to the fact that there is no capital gains tax (CGT) when you sell PBSA, this represents extremely generous tax treatment.
Fraser Morgan specialises in the development of quality student living projects aimed at investors. We are able to offer these developments on either a land only basis, or as a turnkey investment. For more information, contact Mark Robinson.