Rental Guarantees and Protections for Investors in PBSA
Investing in purpose-built student accommodation offers more protection for the investor than other kinds of property investment. Not only is a rental income often guaranteed by the management company whether the room is taken or not but the student will have a guarantor and often pay well in advance of their tenancy.
Who Pays the Rent in PBSA?
Rob: Paul, one of the questions that we get asked a lot by our clients when it comes to purpose-built student accommodation, is around a little bit of uncertainty on who the actual tenant is. They realise, obviously, that it is student accommodation but is it the end-user, the student, that is paying the rent? Is it the parents, is it the university, is it some sort of bursary?
Paul: The university isn't involved, at least as far as I know. In general, it is either, to my knowledge, the student, if you don't have a guarantor and that is 6-12 months, in advance.
And then, obviously, if they pay for 6 months and do that, there is a waiting list, as we know. This place, here, has a waiting list.
Rob: It's one of the things we discussed in the video with the management company, which I was not aware of, specifically, not only with this site but with other sites as well, is that there is regular demand, people are asking for rooms on an ongoing basis.
Paul: They have got nowhere else to go.
Rob: So, if a tenant does move out, within a short space of time because they don't like it at university or they move on somewhere else, there is still demand, throughout the year, of people wanting to take that room.
Paul: Yes. We tell them to come in and fill in their notices, like this. And this is a company that is set up to be a rent guarantor. As a company, they will then back you. You pay some sort of nominal fee.
Rob: Like an insurance premium?
Paul: Like an insurance premium, they come as a guarantor. So, again, as an investor, even though, generally, rents are guaranteed for these because that is part of the deal and it's irrelevant whether it is occupied, you want it occupied or at least you still need to know and everything seems to be covered for that.
A Comparison with Other Types of Property Investment
Rob: From of landlord's point-of-view, the students are paying the bills, you have got the guarantor, there are other options there, from an insurance perspective and certainly it feels a bit more secure than another mainstream property, which, in theory, should work quite well but it's still a bit of a stab in the dark if it's a 2-bed terrace and you've not got the history of that property or you haven't spoken to the letting agents or you have not made your comparisons but I guess with a student then you know it's okay.
Paul: You are more protected. All those sorts of things. And especially if they are paying 6 months in advance, which I think is the most popular. The fact is, they get in, 6 months is done and, again, it's great security for the investor, knowing that it is there. That there is consistency.