In the UK, students tend to spend their first year in purpose-built student accommodation (PBSA) and their subsequent years as renters, typically in “flatshares” with friends. A combination of increasing student numbers and the need to update existing PBSA has meant that property investors have had plenty of options from which to choose and it seems likely that this will continue to be the case for some time to come.
That being so, property investors may wish to look at either, or both, options for accessing the student market. With that in mind, student property specialists Hopwood House discuss key considerations when deciding which would make the better investment for you.
PBSA is classed as commercial property, even though it functions as residential property.
Even though students can, in theory, live exclusively in PBSA for three years (or more if they undertake postgraduate study), it is classed as commercial property rather than residential property and is treated accordingly in terms of stamp duty and regulation.
The process for exiting PBSA investments differs from the process of selling residential property.
In general, investors exit PBSA by selling their unit(s) back to the management company rather than by selling them onwards to another investor (or residential buyer). A reputable development company will set out the process for this when you make your purchase so you have a clear exit strategy and the costs involved, avoiding any unknown fees that can occur when selling to a traditional estate agent.
PBSA is always managed by a third-party company.
There are all kinds of reasons why it is often totally impractical for individual landlords to run their PBSA units themselves in the same way as they might run private rental accommodation and even when it might be, theoretically, possible, it is still highly unlikely that universities would permit it for the simple reason that they want all their students to have the same, high-quality experience regardless of the competence, or otherwise, of the investor who owns the particular unit to which they are located.
Rents are set by the management company and/or university.
Again, this is really an extension of the previous point, but it is worth highlighting in its own right. Universities want their students to have a consistent experience and as such absolutely want to avoid the possibility that different students will be charged different prices for the same level of service (or at least what they perceive to be the same level of service). While it is entirely possible that the same PBSA will offer different sorts of accommodation at different price points, there will be a clear and obvious justification for the different rates charged for each unit.
There is no meaningful process for tenant selection.
When it comes to PBSA the basic rule of thumb is that you get who you’re given. On the other hand, you could easily say that PBSA has inbuilt tenant selection given that it will be attached to a university and any tenants who exhibit anti-social behaviour (or who fall behind with their rent) may face disciplinary sanctions from their university.