A question that many of our customers ask us at REW is will I be-able to sell my unit in five years or 10 years? The short answer is of course yes, you can sell your en-suite, student pod, studio apartment to a like-minded investor at any time, even if you want to resale while still within the assured rental period – this term is simply transferred over to the new buyer.
Resales are a great option for our customers that want to invest in a purpose-built student property which is operational and already generating rental returns. Due to the stable returns the sector produces, investors tend to hold onto their stock however, resale student rooms provide an alternative to those who want to skip the construction phase.
In simple terms you will be selling a high-yielding asset that is already proven and running operationally for several years. Student accommodation provides a rising year-on-year return so therefore has a buoyant resale market. It will be a case of looking at local market conditions and the resale price in relevance to the annual yield to ensure that it is still high and attractive for the new buyer as our REW Head of Investments, Chris Britto explains.
“All my clients naturally will ask about the exit strategy before purchasing a student unit for the first time. Of course, there may be concerns that because PBSA for example cannot be purchased with a mortgage, it limits the number of people that will purchase this later down the line. This is where we help in a full-circle approach for our customers: we have two markets, people that purchase early in construction (off-plan) as they want the better investor offering, the best prices and better choice of apartments. And secondly those that want a complete and tenanted investment – they don’t mind about the position of the unit – just the fact it’s been continuously tenanted and that its seen a continuous rental return.”
“With Purpose-built Student Accommodation, Chris continues, it’s a pure investment lead purchase. Investors are buying rent that delivers a strong return on their capital for a decent period. Student accommodation (PBSA) will ride out Brexit, it won’t be impacted as its about pure supply and demand and student numbers being under supplied – only 36% of students can access this type of accommodation across UK.
“When it comes to investing in this market it is so important to invest in the right town, in the right development, and with the right partners, where you know it will continuously attract strong occupancy and growing rent return. With these fundamentals factored in, you will be in a position to resell an apartment that will give a new investor at least a 7.5% – in six, seven, eight years or whenever you wish to pull out your capital – this is the return that new investors, that want to buy a complete and tenanted apartment are happy with.”
We (as well as other investment companies) handle re-sales in house and the returns we offer on a completed & tenanted apartment to a new investor are 7.5% net.
So how would we work that out when you come to us to re-sell in year 6?
Example investment: (based on a £81,250 unit)
Purchase price – £81,250
Rental return in year 6 – £7,759
Return % in year 6 = %
To calculate selling your apartment to a new investor which would be happy with 7.5% return, you simply divide the current rent being achieve which is £7,759 (Year 6) an divide by the yield 0.075 (7.5% for the new buyer) which give you your re-sale price at £103,453
Price – £103,453
Rental return in year 1 – £7,759
Return % in year 1 = 7.5%
Therefore, selling in year 6, in this scenario, shows a resale with strong, but achievable, capital uplift.
It is important to keep mindful that with student property, rental inflation is the main driver for price inflation – not the local property market – as people are buying these solely for the income. Student rents always rise above inflation so consistent growth is resultant, as is insulation from volatility in the wider property market. In short, student rents have been rising for the past 15 years at circa 2.5 – 4%.