We have been getting quite a number of inquiries from potential investors and clients in relation to the Liverpool student pods for sale that we initially proposed to release in August, the Sunderland student pods and the up and coming London student pods for sale (which will be released in early 2013). We have decided to create this generic FAQ about student pod investments in general, whether you are looking to buy with us or via another company. Please bear in mind that this is a ‘real-time’ FAQ and is subject to change at any time.

It seems that clients, for the most part, seem to have a few points that they raise and they are almost always relevant and important questions that need to be asked as part of the due diligence process. While the endless number of student accommodation providers in the UK are quite content and able to plug their products via the property portals, classified ads and newsletter marketing, there seems to be a dearth of information on the potential pitfalls and problems the investor may encounter. By no means are we claiming to be an impartial observer as we too have student pod investments on offer that we regularly promote, but we will try to be as introspective and as forthcoming as possible with the key points addressed below. If you feel there are any other major concerns missing, then please do get in touch and we’ll happily discuss them.

Should I invest in Student pods or consider student pod investments?

Yes! If you already invest in student accommodation, then you’ll realise the healthy profits that can be obtained in letting your investment to students in key towns and cities across the United Kingdom. They are usually guarantor backed, meaning that if the tenant defaults, then you can take this up with the guarantor (which is usually their mum or dad).

If you have never invested in student pods or student accommodation, then you should seriously consider it to diversify your portfolio. It always good to test out and see what different markets pay out from a rental perspective and the old adage of never leaving one’s eggs in one basket is very relevant in the property rental game.

How are student pods different to student houses and which one is better?

In general, student pods are rooms contained within private halls of residence. These are typically sized between 8 sq. m. to 14 sq. m and can be either ensuite or non-ensuite. En-suite typically consists of a wash basin, toilet and at the very top end, a shower. These student pods can be bought singularly or in multiples as a typical student hall of residence will contain 40+ rooms.

A student house is usually a terraced, semi-detached or detached with 2+ bedrooms which is let out to students on a single room basis. They then share whatever common space is available e.g. lounge, kitchen and bathroom.

The student house arrangement has been in existence for a long time and is the de facto set up to let out to students. The student room or pod arrangement has only really come into existence in the last 3 years.

The benefits of investing in student pods versus houseshares are addressed below:

Management of student pods versus management of student housing

Student pods are usually completely hands-off. Everything should be managed by the developer/management company. When we say management, we mean the day to day running of the operation. With a student pod development, the developer should categorically state what is being managed and what isn’t. Get this in writing from them so you are not sprung with any nasty surprises which will eat into your cashflow. We’ve seen a dozen companies offering a ‘guaranteed 10% net rental income’ for x amount of years. What you need to ask is, once this rental guarantee finishes, would you need to pay a local lettings agency to manage your pod? This is another 1% off the said 10%.

Student houses do require a heavier level of management from your side. Whether you employ a lettings agency or not, you will still have to ensure that the right tradesman is used for any repair jobs, you will have to approve the plumber to come out to repair the boiler and you will have to make sure the students have notified the council that they are exempt from council tax otherwise you may receive a demand for unpaid council tax a few years later. The bottom line is that running a HMO, student or otherwise, is time and money intensive, so you’ll have to prepare for that.

Do I need to apply for a HMO license if I buy a student pod?

Student pods do not generally require an individual HMO application from each individual investor. Assuming the developer and sales agent have made clear to you and can provide legitimate proof that the development covers all licensing laws as defined by the local council, then this is something that you do not have to worry about. It would take a an incompetent developer of gargantuan proportions to offload student rooms or pods that do not have all the necessary licenses in place prior to sales contracts being exchanged.

As for HMO licences for student housing, it does vary from council to council and you should contact your local authority to determine what the ruling is. In general, should the property house 4 or less non-related individuals in a two or less storey property, then you shouldn’t need to apply for a license. Conversely, if you will house 5 students or more then you will need a HMO license. Again, it’s important for you to confirm how your local council operates and the information detailed in this paragraph is subject to change at any time.

Can I get a mortgage for a student pod investment?

Unless the market changes drastically, then there is absolutely no way that you can get a buy to let mortgage lent against your student pod. It doesn’t matter whether the purchase price is £20,000 or £70,000, it is highly improbable that you can get a buy to let mortgage lender which will consider this. The only two scenarios which you can get lending on this is the following:

• Developer backed finance – say the student pod is being sold at £50,000 the developer/sales agent may ask you to put forward 50% (£25,000) and the developer will lend 50% (£25,000) over 5 years or so. Great you might think – you only need to cover £5000 per year for five years. But what is the point? In the best case scenario, you would have to put the rental income straight back in for five years. At the end of the five years you could say that £25k has been paid off, but since there is no secondary market for these investments, no-one – absolutely nobody – has any idea of what these will be worth in a few years time. Think about it another way – could it be that the student pod only required a build cost of less than £25,000?

• Commercially structured finance – It could be that the developer has managed to secure a commercial lender, high street or otherwise, to offer commercial type loans which are project specific e.g. a commercial lender could see value in lending against bricks and mortar in London student pods as they feel assets are more secure in the capital. Alternatively, you could be a high net worth client or have excellent contacts within a commercial lending facility who offers bespoke lending to you as a preferred client.

The bottom line in this instance is yes, you might be able to get developer finance or you may have the capability in securing specialist funding, but what about when you need to sell? Will the buyer be able to secure liquid funds just as effortlessly? This is crucial to think about when you are in the buying process.