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How does PBSA fixed assured rental income work?

by Nikki Dale -

For many UK university cities and towns demand far outweighs supply and therefore purpose-built student accommodation – in normal times – 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.

An achievable annual rental appraisal is worked out – along with realistic service charge and management fees.

The appraisal will consider all 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.

Based on figures produced by the management company division the developer can offer the investor a fixed assured rental income of X% p.a. for X number of years.

Developers are so confident after this process that the assured rental is built into the purchase contract of the property.

This will be in place for a minimum duration of the assured rental period and is transferable at resale.

What happens after the fixed assured rental period?

Before an assured rental income period ends, the property management company contacts the owner about continuing with them in their current capacity:

  • Ensuring the property is tenanted.
  • Payment of utility bills, maintenance, and repairs.
  • Transparent statements and paying the net rental directly to the owner.

PBSA rents have an approx. 2-3% compounded increase annually.  So, during a fixed-rental return period, rental rates are gradually increasing year-on-year.  By the time you are out of your three or five year assured period, you should be earning a higher percent per annum than the fixed-rental return amount.

What if the property doesn’t make the assured net rental?

During the fixed rental return period, this is more a risk for the developer than for the property owner as you are being assured the net rental contractually.

However, under this obligation developers have – or should have – a contingency plan, where they set aside an amount in the event of any assured rental shortfall.  This contingency fund is often held in a separate account and paid by the developer to the letting company to top-up the net rental payment if needed.

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