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How does fixed assured rental income work on Student Accommodation?

by Nikki Dale -

No doubt you have seen in your research, 10% p.a. net for 3 years | 8% p.a. net for 5 years, this sounds amazing … maybe even too good to be true? It’s actually quite easy to explain. For many UK university cities and towns demand far outweighs supply and therefore purpose-built student accommodation has been able to secure an average occupancy of 99% across the UK (CBRE)

The developer will employ the services of an established student management and letting company or have a division within its development group. They will calculate clear appraisals of achievable annual rental income along with realistic service charge and management fees. The appraisals will consider all of the variables e.g: area, exactly where the development is in relation to the campus and town centre, void-periods, utilities, insurances, service charges, maintenance etc.

Overseas students rent for 51 weeks of the year and UK students rent approx. 42-43 weeks of the year so again this is considered, however purpose-built student accommodation is particularly sought after by overseas students wanting a higher standard of accommodation.

With this process concluded the developer can offer the investor a fixed assured rental income of X% p.a. for X number of years. The terms of the assured rental are part of the purchase contracts. There is a separate Property Management Agreement, this will be in place for a minimum duration of the assured rental period but it is transferable at resale, ensuring the appeal of your property to new buyers whenever you choose to sell

What happens after the fixed assured rental income period?

It is a very seamless transition between the management and letting company that has been looking after your property, and your tenant for the last few years. In advance of the assured income period your property management company will contact you about continuing with them in their current capacity. They will continue to look after your tenant and replace your tenant at the end of each term. They will continue to look after the payment of utility bills, take care of maintenance and repairs and regularly send you transparent statements and pay your net rental directly into your bank account.

From year two on wards rental increases have been 2-3% per annum –during your fixed assured rental period, rental rates are gradually increasing year-on-year meaning by the time you are out of your assured period the 10-year financial prediction below shows you’ll be earning more per annum than the fixed assured rental amount.

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