Student HMO investments are not immune to changes
In the past, we have highlighted concerns in relation to investing in student pods and some clients have contacted us to say they will now not be investing in student pods which they consider to be too risky. Again, we want to state that whilst we don’t think student pods should be completely avoided, they should only really be considered by investors that are in it for the very long term, have a absolute trust in the developers and are happy for it to be a speculative bet beyond the initial guaranteed rental period that usually goes hand in hand with these student pods as part of the sales package.
To provide some balance to the debate, in this newsletter article we look at how student HMO investments can also be a thorn in the side to investors and are not the Holy Grail when it comes to property investments in the UK.
In the last month, Staffordshire University announced that they would be closing their Stafford campus and moving their students to their Stoke-on-Trent campuses. Whilst this is great news for student landlords in Stoke, it will on the flipside, be disappointing news for landlords of student investment properties in Stafford*. The university intends on moving 3,000 IT and computing students to its sites in Stoke-on-Trent by 2016 with only the Nursing, Midwifery and Business school to remain in Stafford.
A student property boom in Stoke? A dip for Stafford?
Estate agents and lettings agents are now predicting a boom in the student buy to let sector in Stoke, with 9,300 full time students who will need to be accommodated in the area. A spokesperson for the university says “we are looking at building more halls of residence, as well as working with private landlords” with another local letting agent stating that “one town’s loss is another’s gain” and in this case, the loss being attributed to student landlords in Stafford. What will these landlords in Stafford now do?
Inevitably, it will be disappointing for these student investors in Stafford who may have possibly spent thousands in getting their student properties up to spec in regards to HMO regulations and they will obviously lose out on their cash flow from the lucrative student sector. It also demonstrates the dynamism of the student market, especially in the smaller towns that have been either directly or indirectly affected by the impact of the increased student tuition fees as the primary reason being given for the move is economic, with the university wanting to streamline its resources and consolidating its position in one town. Furthermore, the university cites that it wants to provide a more comprehensive ‘university experience’ and this can only really be done by the university identifying with the town that provides better amenities, transport and leisure experiences.
What now for student landlords in Stafford?
Sad times for the investors in Stafford. However, if we compare this kind of investment with student pods, what is the fundamental difference? At least with houses, the owner of the property will have a choice in what to do. For example, they could:
- Re-market it to the student market in the hope of attracting the remaining midwifery, nursing and business school students.
- Re-market it to professionals who are looking for rooms in the area, if there is a market for it.
- Re-market it as a whole house to local tenants including families who may have been pushed out of the area in the last decade due to it becoming a student ‘ghetto’
- Look to sell it to first time buyers, next time buyers or property investors.
Should the owner have purchased a student pod or a student room investment which was about to go through a similar fate, what options would he or she have (along with the other 200, 300, 400+ buyers in the development)? What level of control would the investor have in dictating the next steps?
So yes, whilst the market is dynamic and the student HMO market is not immune to changes which occur beyond their control, the actions that one can take to offset the changes are much more available than buying into an investment which limits how one can move with ever evolving market conditions.
* For those of you that are struggling to place these geographically, Stoke-on-Trent is located equidistant between Manchester and Birmingham, whilst Stafford is located 17 miles south from Stoke-on Trent, on the way down towards Birmingham.