Investing in student accommodation means you won’t struggle for tenants, but there are risks
Investing in student accommodation is a potentially lucrative option in South Africa, but the risks must be considered.
While student accommodation does offer investors a low-risk option in terms of the possibility of prolonged vacancies, Adrian Goslett, regional director and chief executive Re/Max of Southern Africa, says this type of rental income does pose other risks. These include short-notice lease terminations and the possibility for neglect and damage.
However, Grant Gavin, broker/owner of Re/Max Panache, says investing in student accommodation is a smart choice with the correct safeguards to protect the investment value of the property.
“Seeing as there is generally a high demand for student accommodation, investing in these kinds of properties is recommendable. Student rentals are also often rented out per room, which can result in a higher rental return.
“Since students require ease of access to campus as a priority, they are often less demanding about other aspects. They are happy to share lounges, kitchens and entertainment areas provided the rent is affordable,” he says.
On the downside, students often do not prioritise the physical aspects of the property and are less likely to maintain it.
“Wear and tear is probably the biggest risk. You might need to employ a cleaner to ensure the property is maintained. Some student accommodation landlords employ a house manager who visits the property regularly.”
Gavin suggests landlords add a small levy to the monthly rental to cover costs if cleaners or property managers are hired.
“Damage deposits should also be secured, as per any normal rental. Considering that typically it is a parent who will sign the lease and pay rent, or act as guarantor for the rental and other costs, it is advisable to have house rules agreed to by the students and signed before the lease is accepted.”
Another challenge for student accommodation investors is that December and January will often result in vacancies based on the timing of the academic year. However, where demand is strong and property in short supply, it is not uncommon for landlords to insist December and January is covered to secure the property.
When advertising a property as student accommodation, he advises: “If you’re going to rent a property to students and want to maximise your return, ensure the property is appealing to their age demographic. Wi-Fi with good streaming capacity is a must. A dishwasher, washing machine and tumble dryer are valuable, and a good entertainment area is an attraction”
He adds that security is “a must”.