When you purchase a property and rent it out to university students, you can often get a higher-than-average rental yield for the area.
According to the Knight Frank 2018 Australian Student Accommodation Insight Report, a number of property investors have already entered the student accommodation market and are successfully building portfolios.
The report shows student numbers are rising in Australia. International students in particular are having a direct positive impact on national and state economics.
For those considering a student accommodation investment, we’ve looked at the benefits and risks associated.
In this article we will look at:
- Numerous leases result in greater rental returns
- Multiple leases could result in higher property management fees and periods of vacancy
- Entry prices for student accommodation can be more affordable
- Ensure you are adequately covered for damage
- Increase your cash flow at tax time by claiming depreciation
Numerous leases result in greater rental returns
It can be confusing dealing with numerous leases for the one property at the same time, but the higher economic return for student accommodation often makes the extra work well worth it.
The Frank Knight Report shows student rental properties net between six and eight per cent for inner-city residential property close to educational institutions.
By organising multiple independent leases of unrelated tenants, you could receive a significantly higher rental return. For example, a student rental property could accommodate five tenants in a building which would normally house one family on a single lease. Another advantage of having multiple income streams from more than one lease is if one tenant leaves, there are others still paying rent.
Multiple leases could result in higher property management fees and periods of vacancy
While rental yields are much higher for student accommodation, it’s important to be aware property management fees could increase. For student accommodation, these fees sometimes reach up to 10 per cent of the total rent. There’s also the stress of possibly having no tenants in the property when summer holidays start.
It’s worth considering having fixed-term leases in place, so if students want to leave during a particular period, like at the end of the school year, they understand they still have a lease and they will be required to continue paying rent. Lease terms are typically aligned with the major intake periods, which are January to February and June to July.
Entry prices for student accommodation can be more affordable
A student accommodation investment can also provide a low entry-priced property in CBDs and metropolitan areas. Rents per square metre are very rewarding and there is an increasing trend towards self-contained living, with studio or one bedroom apartments.
Unilodge, an Australian student accommodation placement organisation, says while most investors think being close to a university is a must – this isn’t necessarily the case. Generally, students who live in suburbs further out are later in their degree, earning more money, with a bit more understanding about their environment.
Unilodge suggests shared accommodation arrangements, with one or more ensuites, are a big plus for investors. Smaller households, affordability and a diversity of housing choice are also in high demand.
Recent research conducted by Unilodge advises the greatest occupancy demand is predominately in the $170 to $225 per week per room range, with the past twelve months the average rental arrears was less than two per cent.
Ensure you are adequately covered for damage
The trickiest problem for landlords who own a student accommodation investment property is an increased likelihood for damage to occur. It is important to ensure you have adequate home and contents insurance and to know who to pass costs onto.
With common areas, it can be difficult to work out who is at fault, making it harder to work out which policy the damage applies to. For this reason, most landlords have the same insurer for home and contents insurance BMT Insurance and lodge the claim against the house.
Increase your cash flow at tax time by claiming depreciation
According to the Student Accommodation Association, students want to be able to move straight into properties without having to buy anything. They expect security screens, locks on bedrooms doors and internet access in all rooms. Preferably rooms should be fully furnished, with a desk, chair, bed, lamp, bin, drawers and hanging space.
This may cost more to start with, but fully furnished accommodation has plenty of benefits around tax time. There may be more favourable depreciation deductions for owners of student accommodation properties at tax time than a normal rented property.
Before buying a student accommodation investment property, contact the expert team at BMT Tax Depreciation on 1300 728 726 to help you make an informed decision about the most suitable property for you investment and to discover what deductions you can claim.