So, we talk about this a lot – but we need to, because we’re asked about it all the time.
Especially as we’re coming up to a property boom, there’s going to be a lot of buzz and fancy marketing attempting to lure you into investing in student pods and in hotels.
For the hands-off investor, there’s plenty to get excited about. We get it. It looks good, it looks promising, it looks like an easy investment opportunity.
On paper it makes complete sense. And if they pan out as promised, then great.
The key thing to remember, of course, is to ask will it go as planned? What are they really promising you here?
Let’s face it, some salespeople have the gift of the gab. The returns on student pods and hotels is highly unlikely to be as adventurous as the sales team made out. Strip back the fancy words and pretty financial illustrations, and don’t be blindsided by all the projected zeros.
Think about your exit strategy. Who on earth is going to buy this after you? Not a first-time buyer, not a student, not a family. The only other people who will be in the market to invest in a student pod or a hotel after you will be…other investors! And any savvy investor is going to want it at a much cheaper price than you bought it for – it’s all part of bagging a great deal!
The market with these kinds of investments is very much weighted in favour of the people selling the product rather than those who own it.
There’s big incentives for developers to sell student pods and hotel rooms – the commission is likely to be huge. Have a scout at their previous developments; what were they like? What were the levels of return on those?
And if you can’t find much information on the developer…then that’s not a good sign either.
This is one of the biggest ifs when it comes to these types of developments.
Student pods and hotel room investments are hands-off, but only if things go well.
If things don’t go well, this could prove very hands-on indeed.
With student pods, there’s multiple cases of student pod management companies disappearing after maybe the second or third year, and you go back to the market and look at what is achievable only to find out it’s a very different number to what you were told to expect.
And what if the university suddenly suffers a decline in interest? Suddenly that student accommodation isn’t going to be so sought after.
With hotels, we can see why they’re attractive to investors who want someone else to do all of the management. But you’re placing a lot of faith in the management of the hotel being sound, and in the success of the hotel – what if the area doesn’t need a hotel? What if there’s competition from a better hotel? What if the project goes majorly over-budget?
So this is why we advise treading really carefully with these types of investments.
Even if you do get your rental return (and that can be a big if) you aren’t going to get any capital growth.
And remember – if businesses/salespeople are too keen to get you to sign on the dotted line, the red flags and sirens should be going right off!
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