So I know everyone says to avoid student accommodation like the plague, but how about small 2bdrm apartments that are basically occupied 90% of the time by students (but not limited to students). These apartments are cashflow positive…just.
Having browsed around, it seems the number one issue with student accommodation is whether banks will lend greater than 50-70%. Well, I went to some lenders (commonwealth, NAB, ANZ) and they each, in different words, came to the conclusion that given these apartments were not limited to students and are greater than 40sqm they would lend at least 80%. So that’s the number one problem solved right?
The next issue is vacancy rate. Well there is no guarantee I suppose but the building has a low vacancy rate as it is in a very good location (and it was uni holidays when i checked). Uni’s aren’t going anywhere and neither is the city. New buildings are being built, but currently at less prime locations.
Reselling. Now I am new to this property investment idea but I can’t help but feel that people are very concerned that student accommodation is not worth it as they are hard to sell and thus capital gain is minimal. But (and perhaps I am making a big error here) in a cash flow positive/neutral property are the tenants not paying huge amounts of the mortgage off for you, without you adding any of your own cash (with the exception of the initial deposit). So, assuming I hold the property for say 10 years, the tenants will have paid off a significant amount of the mortgage for me thus leaving me well ahead even should I sell it with minimal or no capital gain.
Basically, the question I am coming to, and I know this is probably very fundamental, is whether a cash flow neutral property (or slightly positive in this case) that will likely not receive much capital growth is worth investing in. And if it is not, if you could please explain why i would be very grateful as i have not been able to find a clear answer.
Regards,
Marcus
Marcus, if you are getting no capital growth your total return is limited to the income generated from the property, over time the asset value might decrease (building depreciates, land stays neutral/slight increase) but overall no growth.
So you will need to generate better returns over future years in order to get an acceptable overall return.
Thanks for the reply. The idea of the building depreciating is one i hadn’t put much thought into and will certainly have to take into consideration.
The rent you can charge for student accommodation is no doubt closely linked to the Austudy Living Away from Home Allowance. If that does not go up each year, then perhaps student rents stay kind of flat.
More concerning is the capital growth factor. It is known that capital growth is not great in student accommodation. Perhaps it is due to the fact you can only onsell to investors and not owner occupiers. Even in a building where owner occupation is allowed, who wants to live in a massive building full of students? No thanks. So you'll never be able to onsell to the emotional owner occupier that pays a bit more for the place because the kitchen is pretty.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
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