Student letting guide: An investor guide to student letting

Student letting guide: An investor guide to student letting

Private Property South Africa
Private Property Reporter

When it comes to student accommodation, perfection is not a necessity. However, location is absolutely everything.

Parents and their undergrads are constantly seeking affordable and safe accommodation off-campus, but close enough to maintain low travelling costs to- and from varsity and safe enough for the lifestyle that comes with being a student.

As it stands currently, there is a huge demand for student rentals in and around the areas of varsities and colleges. Thousands of students enrol for their tertiary learning each year and campuses only have a limited number of beds available.

Five reasons to get involved in student letting

  1. There are hundreds of tertiary institutions nationally, ranging in size from 50 to several thousand students, each. On-campus accommodation is limited.

  2. Multi-let properties can often generate more income per m2 than, for example; letting a home to a family of four.

  3. In many cases the student’s parents pay the rent, which also mitigates the risk somewhat.

  4. The temporary nature of this arrangement makes it easier to raise the rent in accordance with inflation, whereas with long-term tenants the rental tends to be lower than the area average.

  5. The National Student Financial Aid Scheme (NSFAS) is a government entity providing financial support to disadvantaged students. A portion of their bursary can be used for private accommodation, although the amount allocated is usually only to the value of internal university-owned/managed accommodation.

Things to keep in mind:

It is important to approach this type of investment rationally and with awareness of potential pitfalls

  • You must be very stringent about your vetting process. Understandably, most new students will not even know what ‘credit’ really is and won’t have a credit record or references that you can use to safeguard your income. But, on the plus side; it’s usually the parents that pay for their accommodation.

  • Even though the student may be 18-years old, and legally able to conclude contracts, it is strongly advisable to tie their parents in, as signatories and as liable for the terms of the lease.

  • Students have a reputation for noise and property damage. It is of vital importance to ensure that your lease agreement protects your investment and also the interests of you other multi-let tenants.

  • Make provision in the agreement for routine inspections at regular intervals.

  • Student accommodation generally has a higher tenant turnover than other types of rentals, which means that you may have to repeatedly do the paperwork that comes with a new lease agreement.

The groundwork - research your market and setup your investment

Analyse your surrounding market

  • Who is your target market?

    • Is it 1 institution or more than 1 institution?
    • What is the total student number and their demographics?
    • What is the portion of out-of-town students needing beds?
  • What is your location (distance to gate or transport route are critical)?

  • Will you target NSFAS- or private students?

  • What are the NSFAS or institution requirements for accommodation?

  • What kinds of properties are available and suitable for multi-lets? Are you looking at:

    • sectional title units;
    • large older free-standing homes to convert into digs; or
    • re-purposing an office building in the central business district as student accommodation?
  • What are the local council requirements for accommodation (it may require re-zoning in some cases)?

  • What are the by-laws specific to accommodation buildings / communes / hostels?

  • Who are your competitors for accommodating the students?

Financial considerations

  • Do you have a critical mass? (it is more efficient to operate a 40-bed student residence than a 10-bed student residence)

  • What will your variable/operating costs be for services, security, rates & taxes, sectional title levies, water and electricity, insurance, maintenance, advertising fees and management fees?

  • How many beds do you need to fill to cover your fixed costs?

  • Student contracts are typically 10-month contracts only, can you bridge costs for the other two months?

Build your investment team

A trusted estate agent will be able to offer insights around whether students prefer a house share or a bachelor flat or a digs, and what the pros and cons of each are of each.

An attorney, specialising in property investment will guide you through the lease and the clauses that will safeguard your investment, your beloved tenants and all the other students around you.

If you intend to build up a portfolio of student apartments, you should also seriously consider appointing a professional management agent to take care of advertising, tenant screening, legally compliant leasing, deposit- and rent collection, inspections and damage prevention.

TIP: Student accommodation should typically deliver around 15% annual nett yield at 80% occupancy for a 10-month rental period.

How to fine-tune your offering

Unlike a young family who wants to make a house a home, students are well aware of the fact that their accommodation is temporary and that they will be off to conquer bigger and greater things once they have completed their studies. However, students do still expect decent living conditions along with affordability.

Here are some helpful tips

A property that offers a safe and well-lit route to campus is generally a winner. Most students don’t have cars and walk everywhere, often at night. First prize is to be close to food and entertainment as well. Secure parking for those who do have cars, bicycles or scooters is equally important.

After this undergrad’s basic impulse for food and appreciation… safety comes first. The parents signing your lease need to know that you understand this! Security gates, burglar bars and potentially even an alarm system will definitely add to the appeal (and to the value of your property).

Students need practical, hard-wearing finishes, that are easy to keep clean, for example ceramic tiles instead of carpets. They do not have time to do much housekeeping.

A high-speed internet connection with good cellphone reception will most definitely be a service that any student would appreciate.

Purpose-built student accommodation may include amenities such as on-site gyms, swimming pools, coffee shops or at least vending machines and laundry facilities.

Furnished rooms should have a comfortable bed with a good quality mattress, black-out curtains, a study desk and chair, a bookcase and a built-in cupboard.

Communal areas should have comfortable seating, a kitchen with a fridge-freezer, a stove, a microwave, a kettle and a toaster.

Practical, uncluttered bathrooms that are easy to keep clean are important.

Always identify a Plan B

Property Investment is a long-term game, the student market is changing rapidly with new entrants saturating some areas.

If the student market changes or gets oversupplied, what will the property be used for or what is your exit strategy?

TIP: At the end of the day, whether to invest in student accommodation or not, begs the same question, as whether to invest in any other property type; the answer is simple; Your own investment goals are your main consideration.

Welcome to one of the most vibrant spaces in the property game!

Now that you know about the pros and cons of student accommodation... you have done the groundwork... and you have fine-tuned your offering...

The next step in your Student Letting Investor Guide is to 'Live Well'!

Have a look at the rest of the Quick Guides in our series for 'Property 1st-Timers':

  1. Renting guide: A guide for tenants
  2. Buyers guide: Buying your 1st home a pro
  3. Buy-to-let guide
  4. Property flipping guide
  5. Property developer guide
  6. Student letting guide
  7. Sellers guide: A guide to selling your property successfully

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