IPAD Investments (student accomodation)

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Permalink Reply by JeffK on February 3, 2009 at 15:33

Student accommodation should be avoided, particularly in this sort of climate with property prices falling and the global economic climate causing less students to come to Australia to study. A quick Google search shows that they're in Adelaide, and to tell the truth I'm not sure how much demand there could be for studying in Adelaide...

Here are a few reasons NOT to invest in student accommodation:

1. Many lenders may not lend you the cash if it's less than 50m2.
2. There is no ability for you to add value to the property
3. It usually has limited resale value, so you may well be stuck with it even if you want to offload it later on
4. All the properties in the complex are usually identical, which would also make it tough to stand out if you wanted to sell.
5. And because of all these negatives, there is little capital growth. In this market it's likely to even fall.

Are you looking to buy into the development in Adelaide?

JFK

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Permalink Reply by Andrea on February 6, 2009 at 10:04

Hi, Thanks for your feedback. I agree with everything you have said and have since decided not go run with it. Andrea

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Permalink Reply by Miffy on February 8, 2009 at 15:21

Good to hear!!!!

Did this investment come to you, or have you been looking around for somewhere to invest? I ask only because everyone seems a bit stumped when it comes to where to invest - stockmarket is getting hammered, property prices are falling, and now even interest rates on cash have plummeted. Under the mattress? :)

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Permalink Reply by jacquesk on February 5, 2009 at 13:13

Jeffk's analysis and points make a lot of sense.

I had a quick look at their website. The apartments, of which there are 222, are near a campus of 6500 students. It might be worth looking at what subjects are offered at that campus and whether there is a significant component of full fee paying students from overseas. These would be your customer base.

What other student accommodation exists nearby? Is there enough demand that the 222 apartments will be solidly rented out (its just over 3% of the student population of that campus). An investment like this could very quickly become a losing proposition.

Another point I would add, and this is a general rule that may not always apply, is that apartments do not appreciate as quickly as houses or at least that is my understanding. Err bearing in mind I am more of a shares type of investor than a property investor.

No offence to these people but I wouldn't choose this as an investment. Just one persons opinion but I think that your money could be better employed else.

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Permalink Reply by jacquesk on February 5, 2009 at 13:49

Hi Folks
JeffK's analysis is spot on. I would also add that as a general rule apartments do not appreciate in value as quickly as houses.

I had a quick look at their website. There will be 222 apartments near a campus of 6500 students (222 being just over 3% of the campus numbers). Is the existing market for accommodation strong enough that you would be able to have a reasonable expectation of the apartment always being rented?

Will the rent you charge the presumably students be enough to cover:
* your loan ($400 - $500) per fortnight depending on interest rate
* body corporate (wont be cheap)
* Utilities like gas, water, electicity, and maybe council rates. Some of these apartments are a nightmare to keep cool in summer and Adelaide gets mighty hot.
* fees for someone to manage the apartment.
* the apartment possibly being unrented over the xmas non study period (2 - 3 months with no rent, yikes!).

Then factor in depreciation.

Also bear in mind that if the campus shuts (unlikely) or alters what they offer there is the possibility that you will be left with an non rentable and non sellable white elephant. Student apartments from what I have seen are often too small to be resold as general apartments.

No offence to these people or their product but it doesn't fit my risk profile. Then again I am a shares person rather than property.

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Permalink Reply by jacquesk on February 5, 2009 at 15:55

Sorry about that. I thought the blog had eaten my first comment so I wrote another. Then it put up both. In any case now there will (hopefully) be no doubt as to what I am saying or my opinion. :-)

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Permalink Reply by Miffy on February 8, 2009 at 15:19

No doubt at all J! :)

You and Matt are spot on, this type of thing should be avoided like the plaque, even in the most bullish of property markets. The only people who win from this type of investment are the developers and the agents.

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