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Fundamental questions to ask before investing in Student Property (PBSA)

by Nikki Dale -

Purpose-built student accommodation (PBSA) investment has levelled-up in recent years from an alternative asset class to an asset class of its own.

Investors seeking passive, medium-high ROI and defensive to market and economic conditions, (therefore offering a lower risk) looked at the foundations of PBSA investment and compared it to other investments and markets.  There was an instant attraction to its proven counter-cyclical nature and asset-ownership security.

Also, many landlords – who were feeling the effects of the unfavourable legislation changes since 2016 – went from landlord to investor, or at least started diversifying their portfolio’s for similar reasons.  It’s fair to say the key pull with PBSA is its hands-off, hassle-free, and uninterrupted rental income.

So, while some of us have witnessed this flourish-era of PBSA first-hand – which has been life-changing and beneficial for developers, investors, and students alike – let’s look at it from purely a new investors perspective and uncover five of the top questions to ask your investment expert.

It was difficult to narrow down to five as there are so many fundamental questions at the beginning of an investors journey, however, I’ve tailored these more toward the actual PBSA product being offered to you.

Comment below if there are other questions you would like me to cover in a Q&A blog.

Top 5 questions to ask your Investment Expert before buying PBSA

  1. How is the developer funding the project and is there bank finance or loans on the land?

It’s important to understand the financial structure of the build and how the land has been purchased by the developer.  If it’s a buyer-funded project, you will need to understand where, how and when your money is kept and used through the build schedule.

  1. Why is this project in the best location?

There are some key points to maximum success of PBSA.  Students ideally want to be as close as possible to campus/student buildings, as well as the town/city centre or regeneration areas – this is convenient for classes, part-time job opportunities and the all-important social life of a student.

  1. Does the developer have a contingency fund for rental shortfall in the first year?

When an entire project is sold to individual investors, of course that is great news, but also presents a full-house of assured rental incomes to pay.  In the first year, before the project is established, it may only reach 80%-90% occupancy or it may reach 100% occupancy, but has let some of the units on an Introductory Rent Reduction – either way, it’s good to know for peace of mind there is a contingency plan for any shortfall rental in year one.  Note: many developers cover this by retaining a few units for themselves per project/per block.

  1. How does the fixed assured rental income work?

Understand how developers work out their weekly rental cost for students, occupancy projections, void periods and margins to deliver you an assured sustainable annual rental income for a fixed period of time.

  1. What happens after the assured, fixed rental return period?

Your investment expert can supply you after-the-assured-period rental projections.  It’s a great question to ask as you get to see the projected YoY compound rental growth.

 


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