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Types of student accommodation
It’s useful to break student accommodation down into 5 main types:
These are usually former residential houses that have been converted to house three or more tenants, where each is from a different household and share communal kitchen and bathroom facilities (unless all bedrooms are ensuites). HMOs have to have C4 planning consent, are subject to local licensing requirements, and must comply with regulatory standards concerning safety, amenities and room sizes. Flats with three bedrooms or more are also classed as HMOs.
Whether built from the ground up or converted from larger premises, these blocks typically house anything from around 50 to 500+ bedrooms formed of either studios, single ensuite rooms or cluster flats, and often provide a range of lifestyle facilities onsite such as laundry services, gyms, concierge, cleaners etc.
Converted from small office blocks, commercial premises or large period houses etc, these blocks have fewer bedrooms and onsite resources than PBSA, and may also consist of either studios, single ensuite rooms or cluster flats.
These can be repurposed to rent to students, normally without planning permission if they are for two students or less.
These are often sold off plan during the construction of PBSA to fund developer costs and normally come with a rental guarantee period.
Is student property a good investment?
Not all student accommodation is the same but it is possible to talk in general terms about some of the distinctly advantageous features of investing in this asset class:
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(typically July to June). This creates a very predictable lettings cycle, minimises the chances of void periods, and virtually rules out the need to ever evict tenants.
often by more than six months. This gives landlords a lot of security, high visibility on lettings status and ample scope to manage future performance.
providing a high degree of income security, drastically minimising rental defaults and the consequent need for expensive court action.
which simplifies and lowers the cost of the lettings process significantly compared to letting on a room by room basis. It also offers another layer of income protection in that all tenants are jointly liable for ensuring all rent is paid.
whether monthly or quarterly, and in the case of some PBSAs, up front for the year by many international students, providing significant cashflow benefits.
This is especially true for properties finished to a very good standard as students are an ever more demanding and discerning consumer and willing to pay higher rents for superior accommodation.
so landlords are never asked to contribute to this cost, and aren’t susceptible to adverse and costly changes in regulation (e.g. backdated tax banding of each separate room).
The ‘Article 4’ planning directive restricts the creation of new HMOs in popular student areas. This effectively reduces competition while boosting likely annual increases in a property’s value.
between types of accommodation, and between high yielding higher risk university areas (e.g. Hull, Derby) and lower yielding low risk areas much more likely to provide strong capital appreciation (e.g. Lancaster, Durham, Lincoln, Loughborough).
as university intake always increases during economic downturns as more people delay entering the jobs market, thus creating higher demand for accommodation.
and well located good quality student accommodation looks set to continue performing strongly over the medium and longer term.
Managing risks
It’s essential to be clear on how to navigate through the Dos and Don’ts of student accommodation to avoid common pitfalls and generate the very best returns possible.
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When you clearly understand your own goals, capabilities and risk appetite you will be able to say no to the wrong deals and yes to the right ones. This is especially true for newer investors.
You can buy the best student property in the world, but if it’s in an area not favoured by students you may well struggle to let it. The insight of those with local knowledge is essential.
Don’t overpay, but remember it’s better to pay the going rate for a great property than to get a bad one on the cheap. Many investors turn quality deals down because they aren’t enough of a ‘bargain’ only to regret it years later when the property has gained significant value. Good student accommodation is very rarely available ‘below market value’.
It’s critical to grasp what a property will truly cost to buy over and above the purchase price, how much you will realistically have to spend to renovate it to a sufficient standard, and what income you’ll actually receive after tax and all running costs. Sadly, some vendors and/or agents misrepresent the true income and expenditure, or balk at the request to disclose all the relevant numbers. If they do, it’s probably because they’re trying to hide something.
Every student HMO must meet minimum safety and amenity standards and have the correct planning permission and licences in place. Without this, you can’t legally let it out, and could be liable to very hefty fines for non-compliance.
Students want high-quality well-equipped places to live. Failure to provide this will lower the rent you’ll be able to charge, and increase your maintenance bills. They also greatly value quick responses when they report issues with their accommodation. If they get this from you, expect your reputation to benefit from word of mouth recommendations.
Without the time and expertise to market and manage your property, you’ll need a professional letting agent to ensure your properties stay fully let, and well maintained so that you can enjoy a hassle-free reliable income. A good agent will advise you of work you should consider doing to maximise your properties’ value, such as refitting the kitchen, adding another bedroom, upgrading the furniture etc, and offer to organise and project manage these works if required.
If you can’t convincingly explain why you would own a property for 10 years, it’s probably substandard and you should avoid owning it at all.
If an asset has no secondary market or is hard to sell at a good price (e.g. poorly located properties, single room in a PBSA), you’re best avoiding it altogether.
HMOs – Definition and licencing requirements
HMO stands for House of Multiple Occupation. A property is a HMO if it is rented to at least three individual tenants from more than one household, and who share toilet, bathroom or kitchen facilities.
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A household consists of either a single person or members of the same family who live together. It includes people who are married or living together and people in same-sex relationships.
By law, HMOs with five bedrooms or more require a licence from the local council which has to be renewed every five years.
Normally, self-contained flats with five or more bedrooms and shared facilities, even when within a larger block of flats, would also be considered as licensable HMOs.
However it’s important to note that in addition to these mandatory licencing requirements, some local authorities require licences for all HMOs, even when there are less than five tenants.
Under this definition, some self-contained flats comprising of five or more bedrooms and shared facilities within a larger block of flats would also be considered a licensable HMO.
To qualify for a licence, an HMO must comply with legally enforceable safety and amenity standards, such as minimum bedroom sizes and communal spaces, adequate kitchen/bathroom facilities, and certification for gas, electrical and fire safety.
Local councils have to carry out a Housing Health and Safety Rating System (HHSRS) risk assessment on each HMO within five years of receiving a licence application.
If the inspector finds any unacceptable risks during the assessment, a schedule of remedial works will be drawn up which must be completed within a given timeframe, if the HMO is to retain its licence.
Before purchasing an HMO, it’s therefore essential to check the status of the licence if it has five or more bedrooms, and whether any HHSRS assessment has highlighted essential works that need to be carried out.
Understanding Article 4
Under current planning regulations, a normal residential dwelling is classed as C3 whereas an HMO is classed as C4.
Up until 2010, ‘Permitted Development Rights’ meant that a house could be converted to an HMO (from C3 to C4) without the need for planning permission.
Since 2010 however, local councils have been given the power to remove permitted development rights through a clause known as Article 4. In other words, councils now have the right to insist that planning permission is granted before a residential house is converted into an HMO.
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The purpose of the Article 4 clause is to give councils the power to control the spread and density of HMOs in line with their local housing strategies. As a result, councils use Article 4 in different ways across different areas, so if you are considering purchasing an HMO or converting a house into an HMO, it is vital that you understand how the Article 4 planning restrictions apply in the area concerned.
It’s important to understand that in designated Article 4 areas, councils very rarely grant planning permission for the creation of new HMOs.
Before purchasing a house for conversion to an HMO it’s essential to verify that it’s likely to be granted planning permission by the local council (e.g. if it’s not in a designated Article 4 area).
Before purchasing an existing HMO, it’s still vital to check it’s Article 4 status. If it has been used continuously and exclusively as an HMO since before the local council instituted Article 4, then the HMO has proper C4 planning status. This needs to be proven, however, for example, by an unbroken series of tenancy agreements covering the period in question.
Where there is some doubt about Article 4 status of an existing HMO, or where there is some vital paperwork missing (e.g. some tenancy agreements), a planning document called a ‘certificate of lawfulness’ (also known as a lawful development certificate) will need to be obtained from the local council to prove that the existing use of the property as an HMO is lawful. Many lenders insist on this document being obtained, even if all other forms of documented proof can be produced.
So in summary, if you are considering buying a property, either as an existing HMO or with a view to converting it into one, you need to ensure that you understand how the above laws and regulations apply so that you’re not left with a property unfit for purpose.
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Recent testimonials
“New to the world of HMO investment, I could not have asked for a better team to help me navigate through sourcing, purchasing, refurbishment, renovations and letting. The trio partnership of Accumul8, Renov8 and Loc8me is a dream team. As a remote investor this has taken the stress out of venturing into this market. Always at hand when you need advice, Beth is always prompt and efficient in dealing with matters and getting back to you. Professional, polite and courteous at all times.”
“Dealing with Mike has been a breath of fresh air. Accumul8 know the market inside out, are enthusiastic, honest and have always delivered on promises. It’s never easy being a long way from a property but I am more than happy with those guys involved. They sold one property for exactly what we wanted and has sourced a builder to work on our other one which has produced a letting at a higher price than before, in the space of 3 weeks. I couldn’t be happier or more confident in what is being done on our behalf.”
“Mike Hughes provided outstanding service in the sale of our property in Lincoln. He went way beyond the duties normally expected of an agent and proactively anticipated and dealt with issues that would be raised. Mike has very good contacts with the local authority, which allowed difficulties to be resolved and at every stage he communicated most effectively with everyone. His professionalism is an example to others and I can strongly recommend him to whoever would benefit from his services.”
“I’ve worked with Mike on multiple properties – their service is simply first class. I’m always impressed by their expertise and their proactive approach. I would have no hesitation in recommending them to anyone looking for an invaluable partner in property.”
Adam
Founder of Horton’s Estate Agents
“The team at accumul8 and loc8me look after us extremely well. They’ve helped us build and manage a substantial portfolio over the last few years. We’re very grateful to Mike for his commitment to every aspect of every deal that he sources for us and look forward to doing business together for many more years to come.”
“Working with the team at accumul8 helped me expand into three new target cities within a 12 month period and add 120 beds to my student property portfolio. This would have been impossible without their sound advice, ability to source assets at speed, and capacity to undertake and manage two large refurbishment projects. Each acquisition and renovation project came with it’s own challenges which Mike and the team walked me through. As an investment professional myself, I can wholly recommend accumul8 to investors looking for a highly effective and client focussed service.”
“I contacted the team at accumul8 with some general questions surrounding HMO property – I wasn’t sure whether it was the right investment for me. Through their informative communication and proven track record, they gave me the necessary confidence in the student market. By only bringing properties tailored to my investment profile, they clearly listened to my requirements and since initial contact, I have purchased my first HMO through them and am about to complete on a further two.”
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