First time investors: regional vs student accommodation
For first time investors, whether ‘rentvestors’ (those who invest in a home while remaining as tenants elsewhere), current home owners or otherwise, there are limited affordable avenues in which to invest in property. Two relatively affordable and much discussed options are investing in student accommodation and investing in regional property. Why compare these options? Because they share a lot of similarities in terms of affordability and yield that are increasingly attracting the attention of first time investors.
There are definite benefits to investing in either option, the largest of which is affordability. However, before you jump in, consider the following subtle differences in what you can get out of either investment option.
Firstly, there are different forms of student accommodation. There are studio and 1-bedroom apartments, often rented out solely to university students and often situated within a city centre or on university land, thus having a relationship of some sort with a university. This means universities can often help you lease your investment, negating the need for a property manager.
There are townhouses and similar apartments that may be situated near universities and so attract students more than any other type of tenant, and lastly there are regular properties that you can rent out to students. This last form of accommodation can often allow you to receive higher rental yield by having multiple tenants, however there are risks associated with this, such as a higher depreciation of the property’s ‘plant and equipment’ through heavy use.
There are several factors that are singular to student accommodation that first time investors can consider:
- There is the strong potential (unless you lease a freestanding property to students) that you may need to pay management/strata-type fees, which you may be free from if you invest in regional property.
- There is the risk of being left with a vacant property during holiday periods, especially summer, with it being quite difficult to quickly find a replacement tenant. If a university works with you to find tenants, this risk may be decreased through various scheduling techniques.
- Low capital growth, a factor shared by both options, may mean that you want to pay off your mortgage more quickly. This pressure can place extra stress on your finances.
- A revolving door of tenants may accelerate the depreciation of your investment’s plants and equipment. New legislation now means that you may not claim depreciation on second hand items, which means that if you don’t buy a new student apartment, it may depreciate more quickly and end up costing you more to replace and repair carpets, dishwashers, etc. Do remember that a student apartment has significantly less space than a regional property, so there is less to repair and replace.
There are a range of benefits to investing in student accommodation, which are listed in our Pros and Cons list.
Investing in regional property can be an effective long-term strategy for first time investors. However, it is one that requires considerable planning, research and an element of risk that you may not have with student accommodation. Consider the following:
- Investing in regional property requires significant research. This is because regional areas often rely on a singular industry, such as mining or health, to drive population and job growth. If these job providers, such as coal processing plants, close for any reason, the potential value of your property may be at risk.
- Vacancy rates may also be affected by changes to local industry and job numbers.
- The distance between you and your investment requires you to put more trust in your property manager, making it much harder for you to maintain a close eye on your investment.
- Where student accommodation relies on universities, which are predominantly reliable businesses, regional properties may not have such a consistent drawcard for new tenants.
- There is the opportunity to purchase a larger property in a regional area, compared to student accommodation. This may mean higher rental yield and the ability to pay off your mortgage more quickly.
- More and more families and those saving are moving further out from city centres, opening up investment opportunities to those who are willing to do the research.
Have you considered…
Investing in regional student accommodation? Why not get the best of both worlds? Consider investing in regional accommodation that enjoys the benefit of a reliable source of job creation (a university) and a reliable source of tenants. Consider Townsville, Rockhampton, Bathurst, Orange, Toowoomba, Armidale NSW, Ballarat, Darwin or even Kalgoorlie. Remember though, this requires just as much research and consideration as any other investment.