Cashing in on student housing for 2017

Written by in Investment on December 13, 2016

Around Australia, our final year students are on the precipice of learning just how much their hard work has paid off. They will soon find out their final ATAR scores for university entry – or their OP in Queensland – and they’re about to learn whether they’ll be commencing their dream course at university in the new year.

Every year, tens of thousands of Australians get started on their new life journey as a student (and a fair whack of international students, too).

If you’re a property investor, these students could very well be your next tenant, if you decide to go down the path of investing in student accommodation.

How to make a student property investment work

One of the main benefits of a student housing investment is the increased return.

At one student complex on the Gold Coast, which is situated near a university, the weekly rental return is advertised at more than $500 per week. These three-bedroom apartments sell for around $250,000, translating to an incredible yield of 10.4%.

It sounds fantastic, right? On paper, it might be – but there are risks involved. These include:

  • Small rental pool: as a dedicated student rental property, you can only lease your property to students. This limits your rental pool to a small section of the market.
  • Higher costs: as well as the cost of furnishing the property, you’ll also generally pay additional property management fees (which are more expensive due to managing multiple individual tenants), and there may be higher rates of wear and tear, leading to high maintenance and repair costs.
  • Limited capital growth: these properties are affordable, but over the long term, they often fail to grow in line with the rest of the market.

As an alternative, you could invest in a standard residential property located near a university, with the intention of renting it out to students.

For instance, let’s say you have a 3-bedroom house to lease out, and the average asking rent in the area for similar properties is $500 per week. You could furnish each bedroom, install locks on the doors and rent each room out for $250 per week to individual students – driving your rental return up by a whopping 50%.

This allows you to be more flexible and lease the property to other tenants, such as young professionals or families, if you decide to change strategies.

What to look for in a student housing investment

If you’re keen to tap into our growing student population for your next investment, then it’s important to know what student tenants are looking for.

As a main priority, there are seeking convenience. This means proximity to:

  • Public transport

Students often have part-time jobs as well as their study commitments and as a result, access to public transport is important.

  • Convenience stores

So they can stock up on emergency essentials and late night snacks.

  • University or TAFE

Obviously, the closer they are the institution where they study, the better. Walking distance is ideal. Some cities around Australia that are well known for attracting students include Ultimo and Pyrmont in Sydney (near University of Technology Sydney), Carlton in Melbourne (near University of Melbourne), Bentley in Perth (Curtin University) and Kelvin Grove in Brisbane (Queensland University of Technology).

Overall, investing in student accommodation can bring about a number of benefits and if the property is managed well, it can deliver a strong positive cashflow.

However, these types of investments have their fair share of potential risks that need to be considered as well. Be sure to research the market carefully to avoid entering an over-supplied market or buying an investment property with low growth potential.

Are family homes a better investment than student accommodation? Maybe not… read about our latest demographic insights (and why family homes may be falling out of favour) here.