As this university year draws to a close the next generation of students and their parents can both benefit from investing in student property, especially since dedicated student halls of residence are permitted in SIPPs.
The average student debt stood at £12,640 in 2005 and looks set to continue increasing rapidly, becoming an enormous burden for young people wanting to study at university. Parents who are in a position to help their children financially are also feeling the strain of student rents that have risen by 10 per cent annually for the last three years.
However, by purchasing purpose built student accommodation, parents can not only reduce the burden of debt for their children but also invest in their own future, enjoying a healthy rental income long after their child has finished studying. New build student accommodation is a rare hands-off property investment that is truly cash positive from the first year.
Although in the past most people have purchased the properties directly, dedicated student apartments within halls of residence can be purchased through a SIPP - one of the only residential property-related opportunities left open by the Chancellor. This means parents can benefit from full UK tax relief on the purchase of the apartments, before going on to collect rental income tax-free in the pension fund. If the syndicate agree to sell the property, any profits made from the sale will also be free from UK capital gains tax.
Stuart Law, managing director of Assetz, commented: “With more overseas students choosing to study in the UK, government initiatives to increase full-time further education numbers and new licensing to reduce the number of traditional ‘digs’ available, the recent rises in student rents look set to continue.
“Parents, who have struggled to help finance these rents in the past, would do well to consider letting property to students themselves, boosting their own retirement income whilst also providing accommodation for their children while they study.
“Those looking to invest via their pensions, rather than directly, would be restricted to dedicated halls of residence under the latest pension rules, and this already very profitable hands off investment is highly suitable as a property-based pension asset, being cash generative even in the first year.”
Case study: Lincoln
Assetz are selling student apartment halls in Lincoln which are currently 98 per cent occupied, located opposite the university library and close to the city centre. Apartments are available with four, five and six bedrooms, with on-site facilities including a common room with large-screen sky TV, leather sofas and table games, laundrette, solarium, shop, cash machines and first floor courtyard.
A full in-house management team is on hand 24 hours a day to deal with all tenant issues, resulting in completely hands-off management for investors. Another site in Loughborough is due for completion next year.
Price for a five-bedroom apartment - £243,000
Deposit (15 per cent) - £36,450
Borrowing (85 per cent) £206,550
Net rental income after management costs (25 per cent) £14,888
This represents a healthy net yield of 6.1 per cent after management costs, which on a 5.2 per cent mortgage rate leaves the investor with a remarkable £4,147 profit in the first year.
Stuart Law continued: “A landlord who specialises in the student market usually finds it quite stable with a near-guaranteed number of potential tenants coming in year-on-year. Universities have some control over misbehaviour, and the Lincoln halls have their own void safety net which shares any rental voids between all investors.
“Students can be untidy, but apartment refits including carpets and furniture are also covered under the management costs, meaning the investor’s net rental income is well protected. Students paying a premium for high-quality property like this are not like those depicted on the Young Ones series.”
