A student-sector investment specialist is warning landlords to avoid being taken in by the alleged income and capital potential of so-called student pods. Mish Liyanage, chief executive of the Mistoria Group property investment firm, admits that the sales pitch for a student pod is initially highly seductive. “For a relatively modest cash price, you get a stake in the property market in a top university town and a guaranteed income – all without the hassle of having to manage a buy-to-let” he says.
Liyanage claims the vast majority of student pods have been sold at a premium with staggered purchase payments and guaranteed yields for anything up to 10 years.
But as student pods are not considered to be individual properties and therefore cannot be bought using a mortgage, investors will not be able to take advantage of the traditional buy to let mortgage products.
In addition, with most pods being bought off-plan there is no information for the prospective investor about the quality of management of the pod after completion, nor the size and conditions of service charges.
As traditional letting agents are rarely used to manage purpose-built student accommodation, this presents investors with a leap of faith.
“Another concern is the ‘rental guarantee’ offered by developers. This can often be an overstatement. The guaranteed rents are attractive to investors, but often they fail to materialise. I believe that investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure” says Liyanage.
He also claims that whereas with a ‘normal’ buy to let investment an investor can sell the property at any time on the open market – often with capital appreciation – student pods present more difficulties.
Pods are typically leasehold so are a diminishing asset; they are highly-priced compared to almost any other type of residential unit on a price-per-square-foot basis; and they have no established resale market – capital appreciation, even in a rising market, is not guaranteed.
This article first appeared on Letting Agent Today on 5th August 2014.