Pricing correctly to sell student pods – see the whole picture
The way that developers sell student pods, in our eyes, needs to offer better value. We have seen so many that are being marketed with brand new LCD television sets, double beds and free wireless broadband – all gloss and no depth.
Investors that are being sold these packaged products are forgetting that the actual investment, once the TV gets a scratch on it, is the bricks and mortar and the space it encompasses. This is where the value lies. The old saying by Warren Buffet comes to mind “Price is what you pay; value is what you get”. Are you, as the investor, able to differentiate between the two when it comes to student pod investments?
A recent development in Liverpool had over 500 rooms being sold at £55,000. A staggering 500 rooms! It really only takes a two minute search on Rightmove or Zoopla to find that decent quality 3 bed houses can be purchased for £75,000+ in the right locations of Liverpool, which in real value terms is a much better proposition.
How would we sell student pods to the open market?
We have on many occasions stated that we are not against the sale of student rooms per se and – to be transparent on the matter – we have sold them in the past and will continue to do so in the future, should the right project materialise. However, our bone of contention is on the mis-selling of these tens of thousands of units across the UK to the individual consumer market. In this particular post, we highlight the flooding of the market of student pods and how investors are struggling to re-sell and and will continue to struggle to re-sell in the future due to the mispricing of a room.
This is the question we ask: After your 2, 3 or 5 year rental guarantee is up and you come to sell, how are you going to compete with the next wave of developments that is selling a brand new student pod, with a higher spec 40 inch plasma TV, super connected wifi etc. which is a step up from what you bought? Assuming that rents have only increased in line with inflation, this new developer has to sell it at circa 7 or 8 per cent net yield: whose student pod is going to attract more interest? Your student pod, along with the other 499 student rooms that are up for sale, or the brand new student pod?
Let’s assume for a minute that somehow, there is a good secondary market for student pods, what will the value of your student pod be? Will it be a 10% increase? A 15% increase? Maybe you can sell student pods at a comparable figure to what you bought it for? Considering there are 499 other individuals trying to do the same thing and the fact there may be 10 brand new developments springing up at the same time across the UK, we will place a bet and say that you will sell it for at least 50% below what you bought it for.
Shares or bricks & mortar – which is more flexible?
Some would argue that if you are interested in investing in student rooms without the hassle of managing them, then the only true and secure way is by purchasing shares in the likes of Unite Group plc. which is listed on the stock exchange. With this type of investment, should you wish to exit, then it’s simply a case of selling your shares on the London Stock Exchange.
Think of it like this: After the 2,3 or 5 years of supposed guarantees, you will be locked into an ever increasing service charge and management charge as these fees never go down. This is when you might struggle to sell student pods at a respectable price and the armchair you’ve been investing from may not be as comfortable as it was a few years previously.