The Truth about Student Housing

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Just when you thought that getting up for a ‘dawnie’ after a digs party was an existential problem, spare a thought for all those students that don’t have it that easy. Many students have to get up at 4:00 in the morning just to catch a taxi to get to lectures on time and end up studying for exams by candlelight in appalling living conditions. This is hardly conducive to getting good grades. The truth is that student housing in South Africa is in a crisis.

There just is not enough housing to accommodate all the students who want to study. Combine that with the fact that a huge percentage of South Africa’s population is of school going age and might just want decent access to student accommodation in a few years’ time, and it looks like the problem is only going to get worse!

The stats on student housing

A 2015 survey by The Times of nine tertiary institutions in South Africa revealed that of the one million students registered at private and public universities countrywide, there were only 68 419 spaces for the 140 000 residence applications. An example of this is the University of Cape Town which received 21 469 applications for student accommodation, yet was only able to accommodate 6 600 students. Similarly, Wits received 34 000 applications and was only able to accommodate 6 000 students.

The student housing crisis

The downside of this is that a large majority of students are then forced to commute long distances just to get to lectures and often have to make do with unsanitary and unsafe living conditions. Often students are also charged exorbitant rentals by exploitative landlords for what boils down to sub-standard accommodation.

According to the Department of Education, this crisis in accommodation is a primary cause of the high dropout rate at universities and poor academic performances, something which the country can ill afford at this stage. Universities have to deal with cutbacks from national government, budget constraints and as a result prioritise academic and teaching facilities, ahead of tackling accommodation issues head-on. Add to this the perennial problems of ageing residences and the fact that many universities do not have sufficient space around them for building development, and it’s easy to see why some institutions have resorted to outsourcing their accommodation needs to private developers and building managers.

Investment opportunities

That said, with the demand for student accommodation being so high, there are excellent investment opportunities available for the discerning buyer. For a relatively small capital outlay there are excellent buy-to-let options, as many parents of current or future students are willing to pay competitive rentals for residences which meet their criteria.

However, would-be investors must be willing to take several key factors into consideration. Chief amongst these is the location of the student residence. It should be easily accessible from the campus, i.e. within walking distance as many students don’t have vehicles yet, or should have close access to public transport routes that students could use. Also, residences that are sought after for student tenants are those that have security features installed so that parents can be assured of a safe environment for their children.

Characteristics of the student housing market

Many parents wanting more of a return on their money prefer not to rent but to buy a sectional title either for their own children to use while they study or to let out to other students. They then sell their property when the last child has completed their studies as there is a constant stream of buyers anxious to get their children into secure lodgings. This constant buying and selling of sectional titles adds to the volatility of the market and this continuous capital growth is characteristic of the student housing market. Many parents who sell their properties after their children have finished, experience a higher than average return on investment, some selling their properties at almost double the price they paid. Another feature of student accommodation is annual increases in rent as university fees are expensive and go up every year.

Many people with the ability to look long term are seeing these growth nodes in the student housing market for what they are – as golden opportunities for investment. If you are keen to explore these opportunities, contact the right team to help you access buy-to-let home loans.

Homeloans and home ownership always remains interesting.

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We return to buy-to-let.

Here are some solid thoughts for those of you privileged enough to afford a property investment.

  1. Remember to buy close to home. Think of it this way: Trouble equals distance squared. Ever tried to find a plumber to fix a geyser in another town. ever tried to sort out a non-paying tenant in Durban when you live in Johannesburg? One of the benefits of investing in property is that you can “touch and feel” the investment; be close enough to do so simply.
  2. Avoid maintenance as far as possible. That beautiful lawn, the sparkling pool, both can become nightmares in the careless attitude of a tenant. Similarly, look for a property where painting on the outside is kept to a minimum. There are many lovely complexes that are built with face bricks and only gutters, window frames and doors to be painted. Linked to this thought is the question of high rise buildings. A lift replacement in the retirement village in Hermanus has just cost R2.5m for only one floor and the Body Corporate has been saving for 3 years to do it. what you can see immediately is that it has come at the cost of painting and other maintenance. So try to avoid buildings with lifts in favour of stairs.
  3. Remember to retain a kitty for unexpected repairs. Stuff happens and your tenant will not appreciate a slow deterioration of carpets and fittings as you annually increase the rent. Prepare for some push-back and ongoing renovation. You also don’t want to lose on resale because your property is old and tatty.
  4. Secure your tenant contractually. I have just has reason to negotiate a Rental agreement. Rawsons have an excellent offering and the agent was highly experienced in his field – something it is always good to enquire about. However, Just Letting have Rentsecure for almost the same monthly fee. This policy enables your rent, less the 8% fee in total, to be guaranteed every month. If the tenant hasn’t paid, Rentsecure ensures the collection process until the tenant is up to date and will even initiate eviction processes if required. That’s cool to have when needed – collections and evictions can be expensive and time-consuming. Contract with your tenant without exception. a handshake is very difficult to manage legally if and when required. Furthermore, details around behaviour, alterations, pets etc are left in the air if you cannot prove what is considered acceptable. Finally, contracting collections and inspections by a reputable letting agent may look expensive but is well worth the while when required.
  5. Pay off the bond as quickly as possible and make sure it is an access facility. The purpose of having an investment property is to provide an asset to invest further. Just because the bond is being paid by the tenant is not a reason not to pay it off quicker as you are able. once you have the bond reduced or paid off, use it to invest again in whatever you choose. This does two things, a. It enables you to take risks using a non-primary property as collateral so in the event the business does not go well, you don’t lose your family home, and b. The ability to access your bond gives you the chance to take advantage of investment opportunities that arise in a number of markets, for some, even the stock market.
  6. Pick your spot wisely. Close to the Gautrain is popular and tenants will always be plentiful. On the other hand, close to schools and amenities will be popular for young families who often become good tenants. To the later point, a good tenant does not always pay the highest rental – I will often reduce a rental for a longer term or decrease a contracted increase percentage in appreciation of a tenant who looks after my property as their own and always pays on time. Often new property investors struggle with the thought of vacancies and to them I would say: There is always a tenant, there may not always be a high rental. Pretty cheesy if you have to earn a certain amount of rent to pay the bond but then maybe you should have waited and saved a bigger deposit before buying your investment property.
  7. Check out the returns: the following calculations are contentious but when I calculate my return on a property, I use the total cost as the base. See the following example:

Total cost: R645000

Rental per month net of services and levy: R6000

Return per annum: 11.2% [72000/645000*100]

By the way, this is a good return and you could expect less, say, 6-8% net. For this reason it is important to buy where you can expect a sustained capital growth.

Some would say that if I put down only a R100000 deposit and the bank financed the rest, then I could calculate my return as 72% [72000/100000] but I think this is nonsense particularly as the period of the bond increases and repayment occurs on the capital – you obviously use the net rent to do this so how can the return be so high. One thing is for sure in property investment – you don’t need to pay cash and can “gear” your investment with a smaller deposit relative to your bond size.

I’ve said it many times, an investment property or two prove a good long-term asset and give you financial choice when needed.

Buy-to-Let Home Loans

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Buy-to-let home loans are the smart way for South Africans to invest for their future. Buy an investment property while your children are young and when their college-time for comes around, you can borrow against the investment property to help finance their education. When the home loan is fully paid up, you will not only have a property but also additional income every month.

The way to make money on a house is to buy it and keep it for a long time.  It is a lucrative way to supplement your retirement income. Because:

● someone else’s money is helping to buy your investment property;

● when the loan is paid off, the property and the growth value is yours;

● a property can be used as a tax deduction;

● besides the maintenance, it is a relatively unencumbered investment with excellent growth over time.

Getting a Buy-to-Let Home Loan

A successful buy-to-let investment begins with thorough investigation into buy-to-let home loans. If you do your homework and seek the support and advice of an experienced estate agent or bond originator, you will likely do well.

The less it costs you to borrow the investment money the greater your profit will eventually be. The way your taxes are structured will play a role in your margin of profit. Consult with your tax accountant before making any final decisions.

Begin By Researching On Your Own

A buy-to-let home loan is an investment strategy that is growing in popularity with South Africans. If you think property sounds like a promising investment for you search for a buy-to-let home loan lender on the Internet. There are calculators you can use to find answers to preliminary questions.

Questions such as: how much you can afford to invest in a rental property; is a down payment required; what the interest rate will be; the term over which the loan will run; if the loan can be repaid over a shorter period without incurring penalties.

Study the Real Estate Market

There is certain criteria to look for in an ideal real estate investment property. If you look at small to medium sized single-family homes, use this checklist:

  1. The house should be in good condition. It is okay to refresh the paintwork and the landscaping but you do not want to spend money on expensive refurbishments to a rundown house.
  2. The wise choice of house is not the most expensive on the street. The least expensive would be preferable because you will realise increased value if the nearby properties are expensive.
  3. Check the selling history of the neighbourhood. Have prices gone up or down over the last ten years? You want to see a steady increase.
  4. Your investment property will be attractive to many tenants if it is near schools, parks, a shopping centre and public transport. A stable and safe neighbourhood is a priority.
  5. Check the average rental of homes in the area to help determine the possible monthly return on your investment.

It is advisable to view and research several different areas. A real estate agent would likely be helpful in your investigation and save you some time. This is especially true if you decide to invest in commercial property instead of residential. Comparisons will require extensive investigation.

How do Your Numbers Compare?

When you pre-qualify yourself for a buy-to-let home loan, you find out how much you can afford to borrow for an investment property. You will also discover how much the loan repayments will be every month. These will differ according to the interest rates and loan term.

You will need to juggle the advantages of larger repayments over a shorter period – resulting in an overall eventual saving – opposed to a lower affordable monthly repayment over a longer period.

Part of the equation will be whether you can expect to receive a rental to offset the monthly buy-to-let home loan payment.

This exercise will tell you whether an investment property is the right decision for you at this time.

The Right Decision for You?

In South Africa, the buy-to-let loan market is at an all-time high. Rent with capital growth has become a favoured choice for additional retirement income since the returns on traditional annuities and endowments have proved inadequate for retirees to live comfortably.  It is somehow reassuring to be able to drive by, look at and or even touch your investment.

Property is as valid as any other investment asset. Over the last few years property asset investments have outperformed many other assets investments. Banks are well prepared to help investors with the purchase of buy-to-let residential and commercial properties. Would this be an investment choice for you?

Yours in Property,

Vincent

Let someone else pay off your property!

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Let someone else pay off your property! Buy-to-Let is popular worldwide for investment offering great returns that could even be used to supplement your retirement funds. We apply for you and take you through the process step-by-step. For more info go to www.homeloanjunction.co.za

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