3 Key Facts you probably never knew about Purpose-Built Student Property

Lets face it, some property investors have a problem with purpose built student property (PBSA) investments. Here are the most common objections:

  • Tenants are restricted to students only (usually by covenant).
  • There’s seemingly a restricted secondary market so how do you sell up when you need to?
  • There’s no control over the running of the property.
  • These guaranteed rents being offered are just paid directly from inflated purchase prices.

Hands-up if you recognise at any of those?

Truth or urban myths? Lets take a look at each of these comments in a bit more detail.

Tenants are restricted to students only (usually by covenant). That is indeed usually the case, but for good social and business reasons, and to the benefit of the owner. One key reason that PBSA is so popular with today’s demanding students is that they offer a safe secure community of like minded individuals. That’s why rents are higher and often demand exceeds supply when in the right location.

You can’t sell PBSA apartments on. This was perhaps the case, or at least a fear a few years ago when the asset class was emerging and the secondary market untried. The worry was that PBSA would be a flash in the pan and owners would be left with property that no student wanted and that no-one else was allowed to occupy.

That worry has proved unfounded, provided property buyers were careful to select the right development in the right location. Exactly the same level of buyer research is needed here as with choosing any residential investment property, it really is no different. Fundamentally the problem is when unwary investors are led to confuse passive investment with passive research.

What I mean by this is that the promise of hands-free property ownership does not imply there is less work to do when choosing which PBSA property to buy. It seems obvious but inexperienced investors can have their heads turned by over-zealous and perhaps less-than-well-informed sales and marketing. And this is compounded when buying off-plan when computer generated images are relied on to some degree to make a purchasing decision. But find a good reputable independent broker and help is at hand.

Today there is a proven track record in the resale market amongst the best developments, and with rents increasing from the second year, a decent capital gain can be made in a short space of time. There is now an established local and overseas investor market for UK PBSA. Because they are hands-free this is a great asset class for overseas buyers. The secondary market has arguably an even wider appeal than the initial one.

There’s no control over the running of the property. Managing a PBSA is a specialist activity and involves decisions that affect the entire development. Letting the experts do what they do best is really the power of this asset class. that’s why researching the facilities management company before investing in a PBSA is crucial. Again an experienced broker will help massively with that. Such facilities managers charge a relatively high level of rental income percentage (around 20% of income), but this covers everything from routine maintenance to finding tenants compare this with the combined costs of running a rental apartment. And gross yields are usually much higher than standard residential lets, meaning your net income is way higher and without all the hassle.

What about guaranteed rents – aren’t these a number-juggling exercise? Assured rental income for the first few years is very common in PBSA and do offer the advantage of a secure income in the early years of a commercial property in operation. They also make sound commercial sense for the developer. A benefit to an investor is that it smooths the ramp-up of rental income and occupancy to ensure positive cash flow from day 1. A good location should expect to see actual net rents in excess of the guaranteed figure within a couple of years, so the developer can retain the excess in the latter years of the guarantee period, after which the investor gets to enjoy those benefits for themselves.

With the best of breed PBSA’s the rental income will usually exceed the guaranteed figure from opening day. Whilst this can be slightly irksome to the investor at first, it shows they have backed a winner and they will receive greater rewards in the years to follow. So with the well-chosen development everybody truly wins.

Discover more about Student Property today by requesting your guide below:

[news] Chancellor announces lower Capital Gains Tax for non-residential property

In Today’s UK Budget, Chancellor George Osborne announced that Capital Gains Tax is to be reduced significantly. But the Chancellor said that Residential Property is EXCLUDED, meaning that residential landlords could pay up to 8% more in tax than commercial property owners when they come to sell.

Capital Gains tax will reduce from 28% to 20% at the headline rate and from 18% down to 10% on the basic rate. The chancellor made it clear this afternoon in his speech that this reduction excludes residential property.

Investors buying commercial property such as Purpose Built Student Accommodation and Hotel Rooms will however benefit from this 8% reduction, as well as already being immune from the 3% second-property stamp duty surcharge that buy-to-let investors now have to pay when they buy.

So when our investors come to sell their property they will stand to save up to 8% of the sale price in tax.

Another black day for Buy-to-Let

This comes as a further death-blow for support for buy-to-let residential landlords from the government. Residential Landlords already face very significant income tax increases from next year.

We now expect to see a further significant shift of property investors from purchasing residential to buying commercial property, and HighGround are well placed to meet this demand.

The residential assault continues – its no joke

Many had hoped that the buy-to-let Stamp Duty surcharge of 3% starting on April Fool’s day this year would only apply to landlords with less than 15 properties. But no, it was announced today that there will be no such limit. We’re all in this together it seems.

If you have not considered affordable commercial property investment, perhaps now really is the time. Our expertise in sourcing fully managed commercial property gives us a unique perspective.

I welcome your comments and for a one-to-one chat about how we can save you money when you buy and sell investment property, book a call with me here. (You should of course also speak with a qualified tax adviser as your circumstances will be specific to you).

Saving tax

One perfect example of where you could save tax when you buy (no stamp duty for commercial property purchased at under £150,000), when you sell (lower capital gains tax) and while you own investment property is through our flagship student property investments. Commercial purpose-built student property already has key advantages over residential Buy-To-Let, and now these financial benefits are even more clear.

To discover more about the benefits of purpose built student property as well as current trends, download our guide.