With higher-than-average rental yields, student accommodation can be a lucrative investment, but are the rewards worth the risks?
We have personally invested in and managed student properties for over thirty years now, so have a really good handle on how these types of properties perform.
Over the past ten years we have seen an increase in investors buying up properties around the University of Canterbury (UC) for student housing. Where Riccarton and Upper Riccarton used to be the preferred location for students, now Ilam is the suburb of choice, thanks to its close proximity to UC and decent family-sized homes.
Location is the most crucial thing to get right to attract students. Ideally it will be within a 1-2km radius of UC – any further out and rents and desirability decrease.
Five key factors to turn properties into cash cows by adding more bedrooms;
- Large section (700 – 850sqm) – large enough to fit a minor dwelling on the rear, such as a two- or three-bedroom sleepout with a shared bathroom.
- Double garage – students don’t use garages to park their cars and with Council approval, these can be turned into sleepouts – a cheaper alternative to building a new minor dwelling.
- Large or separate living areas – a large living area can easily be divided into two bedrooms, a separate living area can be closed off to make a bedroom and in many instances the dining room is large enough to suffice as the living room.
- Subdivision – If building new, keep the design simple – rooms with ensuites are very popular and generate more rent. Six bedrooms/six bathrooms is the greatest number of bedrooms Council will allow for student accommodation and we have found this configuration gives the best yield.
- Ability to add more bathrooms – when adding more bedrooms, ensure the number of bathrooms is sufficient too. Make sure there is no less than 1 bathroom per 3 bedrooms. An extra shower can easily be added in a laundry by removing the tub which is rarely used.
Benefits of investing in student housing
- Relatively higher rental income compared to conventional properties.
- Higher occupancy rates as students often stay in one place until their study is complete. We keep vacancy low (one week) between rentals.
- Student housing is not affected by economic cycles. During recessions, there is often a pattern of higher enrolment, particularly given a weak job market and lack of employment opportunities, which often results in an increased demand for student housing.
- With the amount of money that has been invested into new buildings and infrastructure at UC in the past ten years, investing in student housing in Christchurch (in the right location) is a relatively stable venture.
What are the pitfalls?
- As is to be expected with young adults leaving home for the first time property maintenance could be a potential issue. We find properties need painting and carpeting every four years or so and cop more wear and tear on fittings and fixtures – hardier options are preferred.
- Your property needs to be above average – gone are the days of students being happy living in below average properties. Nice, well-maintained properties rent well and achieve better rents.
- With the student year starting in February, student leases start anytime between November and January for a 12 month period. If you purchase a property between March and October there are no students looking to move so you will need to factor in finding a short-term tenant at a much lower rent (which is achievable) or worst-case scenario – have it vacant.
There can be a lot of hassles and headaches with managing student investments so it is worth employing an experienced property manager who can handle these for you.
The future of student housing
Christchurch has become a very cool place to live. The city has had an explosion of fun new bars, pubs and restaurants and with great cycle lanes and major improvements to the university campus. With this big influx of young people, they all need somewhere to live!
We are definitely seeing an increase in students looking for rentals this year as enrolments are up significantly for 2022 at UC. People, especially college-aged students, are inherently social, and so much of university life revolves around physically being present at uni. In a post-COVID era, students will be eager to reclaim their independence from Mum and Dad and will be ready for the flatting experience.
If you want to know more about how student flats work click here or to discuss how you can invest in this growing market, please give us a call - (03) 351 7643.
An active investor with her husband Hamish, Claire loves to inspire & inform others, all whilst juggling three little boys and living her mantra to eat well and travel lots.