“Investors need to be very wary of who they are dealing with in the student pod sector. There have been instances of sales agents masquerading as developers, buildings not being delivered and failure to secure tenants and deliver rent to investors, due to professional management companies not being in place.
“Pods are generally sold prior to refurbishment or off plan and usually require full payment up front. Contract clauses also often allow the developer to change the address of the property that investors are buying, meaning a property in Manchester might become a less desirable one in Hull. Failure to let the pod leaves the investor exposed to long void periods and a poor return on investment.
“Similarly student pod investors only purchase a bedroom within a property and have no ownership rights over the living space, kitchen or bathroom, so are entirely at the mercy of the management company which is often owned by the developer. This ‘ransom strip’ can lead to hefty charges to investors from the developer, impacting on yield. Another common misrepresentation by sales agents dealing in student pods is comparing the income per week for a student pod (one of say 5 bedrooms in an apartment) to a prime studio or one bedroom apartment. The two have very different rental levels and whereas pods are usually only let for 42-44 weeks of the year, regular buy to let properties are let on average for 51 weeks. This can reduce quoted 10% net yields for student pods to as little as 5% and only then if efficiently let with 100% occupancy.
“It is surprising how many buyers of student pods fail to appoint an independent solicitor, as they are cash purchasers and do not require a mortgage. A good solicitor is absolutely essential to protect the investor by raising queries on the contract, as well as verifying the developer’s history and credentials.
“The UK student accommodation sector is generally a very sound investment option which we have promoted for 10 years, as it can offer excellent returns. However, our advice would be to stick to student halls of residence where the investor buys an entire apartment with a number of bedrooms alongside a communal kitchen and living area. Be careful to choose a proven and reputable developer and a highly experienced lettings agent, who has a proven track record in the student sector. Alternatively, buy a student room with shared ownership of the kitchen and bathroom.”