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Monday, August 29, 2011

Student rental yields

I was reading over the weekend a piece in the FT about investing in student property. Recent research by Savills highlights that the changes in University funding will lead to winners and losers in terms of towns to invest in. Their research of 114 universities in England indicate that Exeter, Brighton, Manchester and London are still rated as buys. They also like the Russell Group of the top 20 UK universities including Oxford, Cambridge, Bristol and Imperial College London. They have however identified 10 university towns where demand will weaken.

I always get annoyed at these articles that try and include rental yield data. This time the source is Globix. To my mind their rental yield data is meaningless and actually down right misleading. For a start they never make it clear whether the rental yields are gross or net. Net rental yields take off letting, maintenance and management expenses which roughly reduces the yield by around 2 percent. The other aspect is that the rental yield data used just aggregates the average house price in any area (including mansions & houses that landlords would never invest in for students) and then the average rent. Again using rents for penthouse apartments, 10 bedroom mansions and a whole load of property that would never be rented to a bunch of students.The result is a whole load of misleading yield figures.

The FT article includes data such as an average rental yield of 4.93% for Salford and Manchester and 4.27% for Nottingham. Unless it states that a figure is a net rental yield it is normal to assume they are gross of any deductions.

No landlord in their right mind would put up with the hassle of renting to a load of unruly students for these returns when you could obtain a gross rental yield of 6-8% for letting to a single professional or couple. Where you are looking to do a multi-let as was the case with a friend of mine recently I would be looking at a rental of yield 2%+ above a standard professional let for that area.

We all know that there are lies, damn lies and statistics but it would help if half reputable papers like the FT got them half right to start with.

Landlord insurance - specialised student lettings
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