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  • Student Accommodation

    10% NET Guaranteed for 5 years !

    Everyone keeps talking about yields  (let’s assume it’s return on investment in this debate)  especially ‘up north’ and rightly so as Capital Growth is poor .

    As I scroll through the site I keep seeing that advert about investing in student accommodation in Sheffield so you all must have seen it .

    So the idea is you hand an investment company X amount and they pocket some then hand the rest to a Developer who takes his cut then passes some on to a big construction company who takes a cut then the Student tower gets built and the 18 years olds arrive with Daddy as guarantor and they money starts rolling in . A management company deals with all the blocked kitchen sinks , noise complaints etc and 10% of what you invested arrives in your account every month for 5 years .

    Assuming low inflation that sounds good for a very passive and hands off investment .

    Can anybody point out the negatives to this type of investment ?

    The one I would be wary of is steadily increasing and unlimited service charges a bit like happened with Time share holiday places back in the day .
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    I would imagine there will be a lot of small print around that "10% NET Guaranteed for 5 years" I've seen people post on PT about the issues they have had with these.

    Lets assume though that there is no issue with getting that 10% net guaranteed for 5 years, in all likelihood you are buying something overpriced that after the five years are up is going to be hard to resell.  So whilst it may be a good investment for the first five years, the subsequent five may well be a nightmare.

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    A few negatives I'm aware of:

    1. Ground rent clauses in the lease - check these!  I've just found clauses on a client's lease which state the ground rent will double every 10 years for the first 30 years of the lease.  Then will increase in line with RPI every 10 years after that.  Could make it difficult to sell the unit on.

    2. Being so hands-off can be very appealing but that generally equates to the investors not monitoring the management of the building.  Again, with a recent client's student units, we've found FRAs not actioned (resulting in Notices being issued by local authority last month), no service charge accounts, poor service standards with regards building repairs & maintenance, no attention to statutory inspections and certification - because no one challenged the management company.

    3. In some cases, I've seen the guaranteed rent payments simply stop, management companies going bust (after making a good profit for the first 2 or 3 years), and the investor left with a poorly managed unit they can't rent out or sell.  Your piece of paper may say you're entitled to 5 years guaranteed rental income, but if that ceases because the company goes bust, there's very little the investor can do.

    There ARE positives too, but when so much responsibility is devolved to a managing agent, the investor is left wide open to risk.  And as the leaseholder, as the Landlord of a tenanted unit, is still liable for the tenant's wellbeing, that's a big risk.  Over the last 10 years or so, I've learned which developers/agents to steer clear of, and which ones do a sterling job!

    Hope that helps!

    All the best

    Helen



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    Helen Godbold-Eade

    Freelance Administrator for Property Investors / Entrepreneurs

    http://www.like-clockwork.co.uk

    Find me on LinkedIn: http://www.linkedin.com/in/heleneade/


    Lots of posts about this around on FB at the moment. Seems that the guarantee is meaningless after a couple of years. Such places that sold at £60k+ now failing to sell at £25k and less. There’s one listed with a starting bid of £5.5k on an online auction site -SC and GR is £1500 ?

    From a parent’s perspective wouldn’t dream of paying the overpriced cost of these student studios. Son is at Uni and he’s is a lovely shared house for £75 a week and the purpose built stuff is empty and costs about £140 a week.
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    There are a couple of historical threads that discuss these investments and I have read some recent but can't find the links. Here's the historcal ones:

    Both companies mentioned in the 1st thread Middle England Developments Limited / Penlake Limited and their management company Penlake (Candia Management) Limited all now in Liquidation or Dissolved.

    https://www.propertytribes.com/disastrou...-7572.html

    https://www.propertytribes.com/beware-pi...-7768.html

    As Gam3 0ver has outlined above many of these companies offering such guarantees generally build them into the price and whilst you may get a fixed return for the 1st 5 Years (if they honor their promises, there are some horror stories where they haven't) after this time you'll see management costs soar and your yield shrink.

    The biggest issue with these types of investment is your exit strategy, who will buy after 5 years? What will it be worth? I wouldn't expect any Capital Appreciation........some resale values sell for a quarter of their original purchase price.......What will your return be after the 5 year honeymoon period?

    Most of these types of investment are Cash Only, UnMortgageable........Personally I would steer clear

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    Gated but well worth the subscription. From the FT:

    Collapse of UK student property scheme hits investors

    https://www.ft.com/content/1db98d5c-98c5...5cbb98ed36


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    This piqued my curiosity and I found this not behind a paywall:

    https://www.businesstelegraph.co.uk/coll...investors/

    Astonished at how much some investors have put into these schemes.

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    Don't do it. As the going says.. If its too good to be true then it probably is.

    If it was that great loads of landlords on here would stop buying and just go with these people. If the returns were that great then these wouldn't need to seek investments from people like us as banks would be queuing up to lend to them!
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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 


    A guarantee is only as good as the person giving it.
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    I have friends who own a flat that they bought several years ago with guaranteed rent for the first few years. They pay so much to the management company in fees, ground rent, insurance etc that the rent does not cover the costs and the flat is worth less than they paid for it. Avoid.

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    Thanks everybody after reading the replies I will stick with what I know and have experience in .
            A  supplementary question about the doubling of ground rents every 10 years mentioned by Helen above . 
        I can see how this would be an issue if it was forever as it would go something like £250 then 500 ,1000 ,2000 ,4000  ,8000 and 16000 at 60 years making the lease potentially toxic from the very beginning and difficult to sell on even if the doubling stopped at 30 years . 
        I heard there was going to be some legislation to outlaw this automatic doubling of Ground rent and anyway wouldn’t solicitors have pointed out the danger during the conveyancing process before purchase?
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