Return on Student Accomadation

Irishder

Hi all. I am thinking about buying the following:

http://www.daft.ie/waterford/apartments-for-sale/waterford-city/apartment-1-block-9-riverwalk-inner-ring-road-waterford-city-waterford-1333049/

New to this kind of thing so would be interested in people's views. What are the advantages and disadvantages of this type of investment.

I have the cash to buy but i would be better off with a mortgage in order to get the tax break on the repayments?

What would be considered a good return on this type of property

Michael D Not Higgins

I see an apartment in the same development for rent for €65 per week per room. Assuming you can get 3 students for the same level for 9 months, that's a ROI of ~12.5% which is very good.

Things to consider though: students aren't usually the best at keeping a place in good condition so you might have to factor in additional cost of repairs and maintenance, also consider if you're not living in Waterford or don't know the area or market, how you'd manage the property (e.g. agent and associated costs) and the risk of the investment.

Irishder

Thanks. On paper the 12.5% sounds good but this is a manged complex so i have to pay fees to the agency that manages it. Im going to give them a ring tomorrow to see how much the fees are.

Michael D Not Higgins

Irishder wrote: »

Thanks. On paper the 12.5% sounds good but this is a manged complex so i have to pay fees to the agency that manages it. Im going to give them a ring tomorrow to see how much the fees are.

Ah I hadn't read further into the ad. That could change everything. It could mean a much lower yield, but at the same time much less hassle. Really depends on the sums in the end.

JustLen

You need to see the accounts of the management company. You can get a copy on the CRO site for a few euro.

Also you need to see what the management charges are for the last few years with a complete breakdown of the most recent year.

Once you have these figures you can calculate the true yield.

If you want a hands off investment this may suit as it will be fully managed, you will recieve your portion of the pooled rent on agreed dates.

However if you had intended in being hands on in order to keep costs down etc. this may not be suitable.

In short, if the management company is in good shape and the complex is managed well with transparent service charges etc, it should be relatively low risk with minimal effort.

One thing to check is the poularity of the complex with students, enquire into their vacancy rates.

Best of luck with it.

DubCount

A few extra things to note on this type of investment. Due to the irregular returns, getting a mortgage could be difficult. Also, this kind of investment is dependent on student demand now and in the future. Check out some discussion boards on accommodation for the local college. If the college is planning to build a lot of extra on-campus accommodation for example, this might have a bad effect on the long term returns.

Eric Cartman

rents are pooled - you lose money if another apartment isn't filled.
your return is only for 9 months of the year (with some bonuses for summer lettings)
maintenance charges could be higher than normal apartments due to students.