rent apartment in london

is buying student accommodation a good investmentstrategy? when you purchase a property and rent it outto uni students, you can generally get a higher-than-average rental yield for the area. but is studentaccommodation worth the extra effort and the extra risk that is associated with it? hey, i'm ryan from onproperty.com.au. andthe reason why we're talking about student accommodations today is because i got an emailfrom tyler - that i'm going to read out to you - where he asks, specifically, about studentaccommodation. i hadn't done an episode on it so, i thought, what better time to coverit than right now? and to answer tyler's question. so, i'm going to read you out his email. then,we'll get into a discussion about student

accommodation; what's the benefits, what'ssome things that you need to consider and what are the risks associated with it? he says: hi ryan, i have been listening to your podcast fora couple of months now. i have found them very helpful in learning about what to doto buy my first property. well, tyler, thank you for listening to thepodcast. thanks for your encouraging words, glad you found it helpful. he then goes on to say:

i'm looking for my first home. i'm not 100%sure if i should buy an investment first or buy to live in for a while and build up myequity and then rent it out afterwards. good question, again, a lot of people considerthat. my main question today is, what are your thoughtson buying student accommodation as an investment? as i recently saw a listing that would begetting 7.7% return just on rental from the asking price. i have not done a full costanalysis on it yet. do you think this can be good investmentsor are there issues involved? i didn't see a podcast on this topic from you. so, i wantedto ask about it and maybe you can make a podcast on it.

thank you for your time. tyler well, tyler, i am making a podcast on it andi'm here to answer your question about student accommodation. first, let's talk about why people investin student accommodation. people invest in student accommodation because you can geta higher-than-average rental yield for the property than you would if you invest it inregular property in the area. now, student accommodation come in multipleforms. there's one-bedroom apartments or studio apartments; which tend to be in the innercity, right near the universities. and these

are kind of dorm-style apartments that yourent out just to uni students. so, there's those. there's also townhouse complexes that arealmost exclusively rented out to uni students as well. so, you've got a group of townhousesand the majority of those townhouses are rented out to uni students. and, obviously, they'regoing to be near a university as well; tends to not be in the inner city but might be ina smaller city. something like new castle or wollongong or something like that. you've then got houses that aren't in a complexor anything like that, but you're renting them out room by room to students and you'representing it as student accommodation. so

it's not a different property, it's stilla house. you could sell it as a family house or rent it out as a family house but, generally,these houses have more rooms than the standard house. rather than being 3 or 4-bedroom, theymight be 5 or 6-bedroom. and the goal there is that if you rent it out room by room, youcan rent out a property for more than what you can rent out for if you just leased itto the general market. so, the benefit of student accommodation isthe higher-than-average rental yields. there are some extra cost that you need to takeinto account with student accommodation. so, you've got extra vacancy rate. so, if i'mrenting out a property and i'm looking in an area vacancy rate's 3% or 5%. my propertymight be vacant for a week or 2, depending

on how many tenants i turnover. if i keepa good tenant, they might stay there for years and years. when you're renting out student accommodation,there's a lot more flux. because students will be living in the area in order to beclose to uni. when they stop attending university, then they're likely to move out of the area.this happens when they either finish their course or it happens during the holidays wherethey go back home to be with their family. so, generally, you've got a higher turnoverin student accommodation. people moving in and out, so people don't stay for as long.and you've also got longer periods of vacancy when university isn't running.

now, in most cases, university doesn't runin december, january and february. so, university tends to start around march and end some timein november. i've never actually been to uni. so, i'm not 100% sure but you've got 3 monthsof the year there where you've got a high risk of vacancy. so, when i publish studentaccommodation to my membership site - on property plus, which you can find at onproperty.com.au/plus,i list a new positive cash flow property in there every single day. and yes, i do occasionallylist student accommodation. but when i do that, i take into account a 30% vacancy rateon the property because vacancies tend to be higher. generally, as well, property management feestend to be higher for student accommodation.

especially if you've got a house and you'rerenting it room by room. obviously, there's more effort that goes into this rental thanwould into a standard rental where you're only dealing with 1 tenant, who might turnoverevery 6 to 12 months or more. and so, what a general real estate agent wouldcharge for a normal place is at 6% to 8% in most areas, up to 12% if you're in a ruralarea. but with student accommodation, it can be much higher than that. 10%, 12%, 14%, 16%,17%, those sorts of figures. so, you've got higher vacancy rates or a high chance of avacancy rate and then you've also got higher property manager fees. and so, we need tolook into that. and i'll do some calculations using the property tools calculator in a littlebit.

so, basically, the benefit is you've got ahigher-than-average rental yield. but then you've got the negatives of higher vacancyrates and higher property management fees. so, this can be an issue. so now, let's look at the different typesof student accommodation and some of the pros and the cons associated with those properties. what i'm going to do is i'm going to got toreal estate investar, which is a property search tool, it's a paid tool. you can checkthat out through my affiliate link, if you want. go to onproperty.com.au/rei for realestate investar. you can check that out, i'm a member there. i think i pay $99 a monthto get access, i signed up for 2 years.

i'm going to go into the investar search andwe're going to specifically look for student accommodation. real estate investar is likethe google of the real estate market. basically, they look through all the property listingsand you can search for key terms that are in there. so, if i go to keyword strategieshere, i'm then going to go to positive cashflow and what i'm going to do is i'm going to searchfor the keyword student accommodation. also, what i'm going to do is make sure that theproperty yield is a minimum of 1%. so, this is just going to cancel out any student accommodationwhere they haven't mentioned what the rental income will be. the reason i'm doing thisis because i want to be able to analyse, is this going to be positive cash flow or not.so, let's go ahead and click search on that.

and we will then get this result. we can seethat it's showing 1 of 163 matching properties. we can see a whole bunch of properties there.what i'm going to look at today, there's a house in lorna street in waratah, new southwales. so, let's look at that. there's a townhouse in shortland in new south wales; which islike new castle area. and then, we're also going to look at this really small unit inhawthorn, which is in victoria, in park street, victoria. they're the 3 that we're going tolook at today. the first one, this one in hawthorn; whichis in a unit block. we can see that it's a 1-bed, 1-bath, parking; and it's just studentaccommodation. this one is not too bad. i know that there's a lot of properties - like,i've specially seen some in ultimo, where

rather than a standard 1-bedroom unit; whichappears to be what this is - it's actually a studio or it's like a 1-room with a loft. what i see as the risk - not so much withthis one in hawthorn but with another property where it is a studio unit or it is dorm-stylestudent accommodation - is that the only people who are going to be buying that property areinvestors. so, students aren't going to buy it. because they're just going to rent itbecause they're only going to uni for 3 or 4 years. and homeowners aren't going to buyit because very few homeowners will live in a studio apartment in amongst uni students.so, you're limiting your market just to investors. when i was talking to ben everingham, who'smy recommended buyer's agent, he was saying,

generally in australia, investors make upabout 20% of the property market and homeowners about 80%. so, all of a sudden, you're lookingat only being able to re-sell your property to 20% of the market. now, the issue withthat is it can definitely limit capital growth. and also, if you're buying a property thatis a studio or a very small property, then it may limit your lending options on thatproperty. so, definitely some risk with that dorm-style,single-room accommodation in that it doesn't appeal to the mass market. if you wanted togo ahead and sell it, you can only sell it to investors. you can't turn around and sellit to homeowners. it's basically always going to be a student accommodation and there'snothing you can really do about that.

so, not a big fan of those. also, with thesesmaller ones, one of the benefits is that it's cheaper but then because it's in a unit,you've got body corporate fees, which is going to affect the cash flow of that property. what i'm going to do, is i'm going to bringup my property calculator, which you can find at propertytools.com.au. you can get accessto this calculator, starts at $5 per month, if that's something that you guys are interestedin. what we're going to do is we're going to load up this calculator - and i apologisebecause my internet is pretty slow today - and we're going to go through and we're goingto analyse this property in hawthorn and see, well, is this going to be a positive cashflow property or not? and we'll do that for

the one in waratah and we'll also do thatfor the one in shortland, as well. what we need to know, firstly, is the purchaseprice of the property, which we can see is $235,000. and then, we need to know the rentalincome, which it's saying here $350 per week. so, obviously, we can see there, pretty decentrental income. so, here we are, in the property tools calculator. so, purchase price was $235,000,estimated rental income was $350 per week. so, that's a rental yield of 7.74%; whichif we actually go back to tyler's email, he was saying he could be getting a 7.7% return.that's exactly what we're looking at here. and we can see, at an interest rate of 5%and really rough estimates with the deposit at 20%. weekly cash flow is about $48 perweek or $2,500 per year. so, this looks all

right from the offset. but what we haven't taken into account ispotentially higher vacancy rates. property manager fees probably won't be higher on thisone because we're renting it out to just one person. but vacancy rates could be as muchas 30%. and we can see that as soon as i put in vacancy rates of 30%, the cash flow beforetax has actually gone to -$40 per week or -$2,000 per year. now, we also need to takeinto account body corporate fees. i'm not sure if they list them in here. no, they don'tlist the body corporate fees in there. so, basically, what i'm going to do is just arough estimate of $500 per quarter, which is $2,000 per year in body corporate fees.this helps to maintain the unit, all the common

areas and things like that. so, we can seeonce we've done this, weekly cash flows drop to -$77 per week or -$4,000 per year. so, you can see that even though rental yieldis high, the chance of a cash flow in this property is pretty low. even if we used astandard vacancy rate or 5%, our cash flow drops from about $50 per week to maybe around$9.50 per week or $10 per week if the property is rented the entire time. so you're getting$500 per year, which is a cash on cash return before tax of less than 1%. we can see that'snot super epic and that's not really what we're going for. so, you can see the issuesthere with those smaller properties. now, let's go and have a look at one of thetownhouses, so, this one in shortland. large

purpose built student housing. so, this ispurposely built for students, this property. again, similar issues to the small one inhawthorn is, this is always going to be a student accommodation. it's going to be hardto rent this property to a family and then it's likely going to be surrounded by otherstudent accommodation. so, you do need have issues there. purchase price, $590,000. rentalincome of $1,000 per week. just trying to work out if this is in a complex or not. anew freestanding home, so this one isn't actually in a complex at the moment. alright, so, let's have a look at this one.it's a duplex, basically, in shortland. so, if we go back to our calculator, the purchaseprice for that one was $590,000. rental income

of $1,000 per week and let's go ahead andget rid of that strata/body corporate. so, we can see now that doing very rough estimates,interest rate of 5%. weekly cash flow on this one's about $350 per week or around $18,000per year. that's pretty exciting, that's a cash on cash return (before tax) of 13.51%. now, you also need to take into account withthis one, is that this is a 6-bedroom house. now, are you going to have every single bedroomrented out, 100% occupancy at every point in time? no, you're probably not going to.also, with this one, this says you can instantly plug in an instant revenue stream of morethan $1,000 per week. i don't know if they're renting this to a group of people and you'regetting $1,000 per week or if they're renting

it individually. but, again, if we take into account a larger-than-expectedvacancy, so, let's say, 30%. we can see that our weekly cash flow has instantly droppedfrom $18,000 a year to $5,000 a year. and our cash on cash return (before tax) has droppedfrom somewhere around 13% to around 4%. so, if we take those vacancy rates into account,there's a big different there. and then if we adjust our property manager fees to maybe12%, we can see it drop again to $40 per week or about $2,200 per year. and our cash oncash return's now dropped to 1.66%. so, on the surface, while it looks like aridiculously awesome cash flow property, might not necessarily be that. i'm making some bigsweeping statements here about 30% vacancy.

obviously, you need to do your research intothis. that is not a hard and fast rule of what you're going to achieve every time. butissues that i have with a property like this, better than your single unit dwellings but,again, you're only going to be able to sell to investors. it's purpose made for students,which means it's not going to appeal to the general market when selling the property. the last one we're going to look at is onein lorna street in waratah, new south wales. basically, this one's saying it's just likea 4-bedroom house, i'm pretty sure. perfectly configured for the student lifestyle. so,it's not a house that was made for students. and if we have a look at the pictures, wecan see that it's a pretty old and tired house,

basically. it's got 4 bedrooms, it's got yourstandard living room, here's your bedrooms here. each bedroom has its own aircon unit;which, i guess, students would probably like because you're going to spend a lot of timein the room. but, it's just a normal house. that's what i like about this one, is thatit's just a normal house. and this means that when it comes to re-sale for the property,yes, you could market it as student accommodation but you also have the option of actually marketingthis as a normal house that someone would go ahead and live in. let's do the figures on this. this is forsale for $390,000 and approximate return of $600 per week. so, let's go into our calculatorand we'll do $390,000 and then $600 per week.

and then let's go ahead and change our propertymanager fees and our vacancy rates. we can see that the expected estimate weekly cashflow of $151 or about $8,000 per year. cash on cash return of about 8.2%. and then, wecould go through and let's say we're renting in room by room, property manager fees were12%. well then, things drop to $6,000 a year, cash on cash return of 6.25%. and then, again,if we look at our expected vacancy and we really add that up, well then, we move intoa negative situation. if we change that to 30%, we've now gone to a negative cash flowof about $35 per week or about -$2,000 per year. we can play around with these figures if vacancywas only 20%, it moves into positive cash

flow again. so, look, you need to do yourresearch on student accommodation. i am cautious around student accommodation, that is justyour single rooms or houses specifically designed for students because you're limiting yourre-sale value because you can only appeal to investors in that market. i do like properties like this one in waratahwhere it's a normal house but because its close to the university, they can rent itout for student accommodation. so, there's the benefit there if you can get the higherrental yield and then, hopefully, you can work out a way to keep those vacancy rateslow. another issue, you may find it hard to find a real estate manager who will manageproperties on the room-by-room basis. so,

you may need to do it yourself; depends onthe area, you're going to need to approach them. they'll either charge you more or theywon't do it at all. so, there's some analyses on some differentstudent accommodation options. obviously, the benefit of higher rental yield but thenthe downfall of higher manager fees, higher vacancy rates. as well as potentially limitingyour capital growth if it's designated - not designated student accommodation but onlyreally appeals to students. just be careful, always do your research. always make sureyou know what you're getting into. talk to your mortgage broker, make sure you're okayon the lending front there. try and get professional advise and always, always, always do yourresearch. if you want to check out the calculator

that we used, simple go to propertytools.com.au,you can sign up and get access to that calculator over there. and the tool that i used, realestate investar, to search for those products, just go to onproperty.com.au/rei, to checkout real estate investar - that's my affiliate link. is student accommodation worth investing in?well, that's up to you. it really depends on your situation, depends what you're tryingto get out of a property and whether or not you think you can manage those extra feesand extra vacancy rates. so, tyler, i hope that this has been helpfulto you. i hope that this has been helpful to everyone who is considering student accommodationand kind of opened your eyes to what you're

really looking at so you're not fooled bythe higher-than-average rental yield on these properties. i'm ryan mclean from onproperty.com.au. lovespending time with you guys and helping you out. i hope that you like this. if you wantto check out more of what i have to offer, you know where to find me, go to onproperty.com.au. until next time, stay positive.