buying a student accomodation unit

joe sod

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I am interested in buying a student accomodation unit, they sell at circa 60K and the net rent roll after the management charges are deducted is about 4K, it is a pooled investment which means that every unit owner gets there share of the total rent roll for the building. I am aware of the big disadvantages, you cant live in it yourself and it cannot be sold on the general propery market only to other investors who wish to buy in later. Also the management charges would be much higher than doing it yourself. However the management look after everything so you dont have to worry about bad tennants etc as it is pooled so you get paid no matter . My thinking is that if you have no intention of selling it then you just take the "reduced rent" and forget about it. They also much cheaper than similar non student appartments, they would be priced at 90K +.
 

cremeegg

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For a hands off landlord, these are a good option.

The wear and tear is likely to be more than in an ordinary rental. You will probably have to replace kitchen ware, furniture etc and paint fairly often. You need to cost this in.

Also you are basically at the mercy of the management company. In theory these are appointed by the owners, but there is often a developer who owns a number of units and effectively controls the management. The other side of that is that they have a strong interest in the overall success of the campus, and they are usually good at what they do.

I would ask a few questions. What use is made of the property during the summer period. Are there other student accommodation schemes coming on stream which may make an older one look dated, or far away from the college.
 

joe sod

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my impression is that the refurbishment is done on the whole building every so often, but that if one appartment gets thrashed or has really bad students that break everthing in a particular appartment, the management company will pay for that. The only thing is there seems to be a few of them for sale now so they are not exactly snapped up immediately, you have to be a cash buyer. Therefore I think you need to be prepared to lock up your money for a long time, on the other hand though you are only locking away 60K not 250K etc that you would be by buying a conventional house.
 
D

Dan Murray

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Hi Joe Sod,

Is it possible for you to send a link to what you have in mind? The quoted net yield of 6.67% seems very attractive - is it genuinely attainable year or year?

Also, does anyone know of a decent research paper of the merits of different types of property ownership for the Irish investor?
 

Vanessa

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Is there an option for short term rental during the Summer months or would you be able to use it for visitors?
 

Palerider

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You lose a lot of control with these types of property investment and that may well suit you. Some of these in Ireland over the years have not worked as planned, they are similar to purchasing the Hotel suites, you are very reliant on the ability of the operator and the exit is unclear which is unappealing to myself. In the Uk the experience seems to be better, Is your investment going to be in Ireland ?
 

cremeegg

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I am not aware of any student accommodation schemes that have collapsed, certainly there have been some hotel schemes which did.

Usually the student accommodation investment gives you title to the individual property, with a pooled rent arrangement available. The hotel schemes just gave you a claim on the letting income.

The best test of any of these things is if they have been operating successfully for a while.
 

lukas888

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117
I have first hand experience of student accommodation apartments one in Limerick and also one in Letterkenny.At the asking price of 60k
i presume your location is somewhere similar.Most of the schemes were built on foot of section 50 tax breaks similar to section 23.My experience
was not good, if not for the valuable tax break they would have ended as a complete disaster.To be fair both were purchased in 2006 costing 150k.
The Limerick apartment was a pooled scheme and i never once over my ten year ownership received the promised rent.The Letterkenny unit was
a complete disaster and it did collapse.Apart from the main university locations where the demand and numbers are large i would be very reluctant
to invest.
 

joe sod

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I have first hand experience of student accommodation apartments one in Limerick and also one in Letterkenny.At the asking price of 60k
i presume your location is somewhere similar.Most of the schemes were built on foot of section 50 tax breaks similar to section 23.My experience
was not good, if not for the valuable tax break they would have ended as a complete disaster.To be fair both were purchased in 2006 costing 150k.
The Limerick apartment was a pooled scheme and i never once over my ten year ownership received the promised rent.The Letterkenny unit was
a complete disaster and it did collapse.Apart from the main university locations where the demand and numbers are large i would be very reluctant
to invest.
thanks lukas, so you have first hand experience, so it appears they are much cheaper now than when first sold to investors, Im looking at one in Waterford. When you say the one in letterkenny collapsed what do you mean?did the management company go insolvent?, but you still owned the appartment so the owners could still do something else with the building?
In fairness there is no guarantee of a set rent just giving me the pooled rent paid out for last year. The only thing a bit off putting is that there seems to be a few of them for sale now, if they were so good you would imagine they would be snapped up fast. Maybe people are now wary of these now after experiences like your own and the lack of control by the owners. I think it was built in 2004
 

Palerider

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A quick search reveals a number of two bed apts for sale in Waterford some currently let at €600 a month that would seem a better option, some priced less than €60k, what is it that attracts you to the student accommodation when uncertainty of income and restrictions at exit are evident.
 

lukas888

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117
Most of the student accommodation apartments were built from 2002 up to 2007 and were sold to investors at inflated prices.The primary
attraction was the section 50 tax break which in the early years was unlimited but restricted to all rental income.Over successive budgets
the rules changed and caps etc were introduced and they became less attractive to investors.The main reason more of them are now coming
on the market is investors had to hold them for ten years or the revenue would initiate a tax clawback.Every town that has a regional college
have section 50 student accommodation and in most cases too many for the number of students looking too rent.Many regional colleges have
relatively small student numbers and are drawn from the catchment area so the students are able to commute from home.As regards Letterkenny
a purpose built student village of four blocks comprising 68 three and four bed units on the Port Road are now closed and derelict.
 

joe sod

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thanks for your information again lukas, that actually explains alot, I didnt now that about the tax break so that explains why they are only recently coming on the market. Im a bit suspicious why an investor would want to sell at such a loss surely it would be better to hold onto them and continue to collect the rent. Maybe they want to crystallize a capital loss to offset a gain in the future. But after reading some of the posts here Im now a bit wary of them even though I think they are cheap even with all the issues outlined here
 

cremeegg

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Why can't it be sold on the 'general property market'?

I dont think there is any restriction on selling these units. The tax break requires that they be used as student accommodation. When that expires after 10 years there is no legal impediment to using them for any residential purpose. Some management companies may try to restrict the use to student accommodation, though I doubt that could be enforced.

However as a practical matter most of them would be terrible places to live for non students. Having said that I know of one development that was purposely built with the intention of converting to normal apartments once the 10 years expired.
 

lukas888

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117
In many of them the planning permission was specifically for student accommodation
use.I don't expect it would be too difficult to apply and attain change of use.
 

joe sod

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Yea but the whole building would have to be converted and that would be up to the management company. It would probably be a speculator moving in to buy the building when they see the time is right, in other words very cheap units. I take your point about the regional nature of these colleges and the ease of travelling from home. Also in Britain very hard to get planning permission for new developments now so good for existing owners, in Ireland we know it's simple to get permission for development especially in the region's. Your example of derelict letterkenny apartments proves this.
 

Ravima

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Yes, my understanding is that the tax break is for 10 years, (these are now as rare as hens teeth!) and that they can be sold on the open market at any stage. JOESOD seems to be saying that it cannot be sold other than to 'investors who wish to buy in later'. This is what I do not understand.
 

Ravima

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In many of them the planning permission was specifically for student accommodation
use.I don't expect it would be too difficult to apply and attain change of use.

Oh yes it would!
 

lukas888

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117
Oh no it wouldn't,for starters if the tax break was not fully used up it can be passed on to future buyers even after the ten year period has expired.You are correct they of course can be sold on the open market.As regards
Change of use for general rental i don't see how planning would be any more difficult to obtain than any other development as long as all owners agree.I know that some section 50 schemes were specifically granted by agreement with the participating college and certainly these could be difficult or impossible to get revised planning.
 
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