Property investors looking to get higher rental yields than they would get from most buy to let properties, they should consider targeting the market for student lets. Rents for students have generally been rising over the past few years thanks to good demand. And because many investors have been wary of going into this market, rental yields are pretty good in comparison with family houses.
Why consider student lets?
The first reason to look at letting to students is simply down to demand. The government’s policy over the past years has been to try to increase the number of students attending universities. With the economy in a downturn, a lot of young people are taking up studies or extending their studies to try to make themselves more attractive to employers. In many cases, with no jobs out there anyway, it makes little sense for them not to be studying. Enrolment for the 2010 year is expected to be up significantly with applications running about 12% above last year’s rate. That could lead to a shortage of student flats and other accommodation in some university towns.
Rising rents
Whereas rents in most parts of the market have stagnated or even fallen over the past two years, rents for student lets have kept on rising. Knight Frank, a property company, reckons they have increased every year on average by 5% a year over the past five years.
High occupancy
Occupancies in some student towns have also been really high. Estate agents reckon that there has been 100% occupancy in some instances
High yields
Rental yields on student accommodation also run somewhat higher than on family homes. Research by Knight Frank shows that yields on the highest quality student accommodation are about 6.5% to 7% in regional towns and about 0.5 percentage points below that in London. This is for prime accommodation. Obviously going down the price and quality scale a bit will result in somewhat higher yields. In comparison when one looks at average residential housing buy to let yields in London, these are currently averaging about 5.5% to 6% at the moment. On houses and flats for families the range of gross yields runs to as high as 7% on some properties and it falls to below 4% in some of the most sought after areas with more expensive houses.
Remember that in some key university towns where the supply of housing is much tighter yields are quite a bit higher and landlords are achieving annual rental increases of a bit more than 5% a year. Many landlords automatically turn up their noses at students. Who, after all, wants a bunch of slobs smoking dope and throwing wild parties, but in fact this is a market well worth considering for improved rental yields on buy to let property investments.