20 May Student accommodation – Brad Beer
Brad Beer – Chief Executive Officer of BMT Tax Depreciation joins us to provide his advice to investors who are considering investing in purpose-built student accommodation or planning on renting out their residential investment property to students. This is a huge opportunity as you will hear.
Kevin: There are more than 71,000 purpose-built student accommodation beds across Australia’s eight capital cities. That’s according to the 2017 Savills Australian Student Accommodation market update. Despite this, demand for student accommodation far outweighs existing supply. That’s according to Savills.
Less than 11% of the full-time student population accounted for in each of the major cities, with Canberra, the only exception catering to 28%. Given the shortage, many students look for alternative accommodation by renting from landlords who lent out regular residential properties.
Today, I’m speaking with Brad Beer – Chief Executive Officer of BMT Tax Depreciation – who’s here to provide us with his advice to investors who are considering investing in purpose-built student accommodation or planning on renting out their residential investment property to students.
Good day, Brad. How are you doing?
Brad: I’m good. Thanks, Kevin. Great to be here as always.
Look, how I went through uni and I lived in shared houses and shared accommodations – a fair few years ago now – but was on the other side of this situation in the past as well.
Kevin: It’s always been a hotly discussed topic, student accommodation. Are there any added benefits for investors who are considering investing in purpose-built student accommodation or properties that are located nearby, say, to universities?
Brad: I think two parts of that question from a depreciation point of view. Often student accommodation is furnished and therefore the deductions are quite high for what they are. Also, if it’s a purpose-built student accommodation, they’re normally a small bit of accommodation and the amount of plant the equipment and things in there as a portion of the overall cost is usually a high percentage.
So, from a depreciation deduction point of view, they’re actually often quite good as far as what you pay versus what deductions you get. Now, I’ve never been one who says ‘‘you should buy this one because of depreciation,’’ even though I’m the depreciation guy. You have to consider all the rest of things about why you’re investing in a certain type of property.
As far as properties in areas around a university, I do own quite a few properties around a university area. I have a lot of property in the New Castle area. And I know one thing, for example, that I’ve tried to do, is properties… Even though I’m not necessarily always looking for the student as tenants – and not that I’m against students as tenants – I’ve had them as well in those types of properties.
One thing I do try to do in those areas is that I understand that there’s a lot of pressure on the market for rentals around the time at the start of the year, so all of my leases on those type of properties, I try to make sure they always end around January, so if anyone’s thinking about moving out, I know. Even if I don’t take the students, I have pressure on the market to maximize my rental out of those properties.
Kevin: It makes sense. Is it possible for you to provide us with an example of, say, the depreciation deductions, the comparisons that an investor can claim for the two different types – purpose-built student accommodation and renting out a standard residential property?
Brad: I did numbers on just a simple two-bedroom furnished self-contained student unit, should it be rented? And a lot of the difference here is the furnished versus not furnished in those numbers. But, something that is a two-bedder with $130,000 worth of deductions in time, over the period of time of ownership or from new to the end. So, not a high construction cost; it’s the granny flat sized accommodation.
I have $7700 roughly in the first year, or unfurnished $6700. So, nearly $1000 difference probably in the first year on something like that, and then over the first five years, nearly $4000 difference in deductions. So, nearly $1000 per year for the first five years in deductions.
So, it’s a few dollars difference in using something for student accommodation there and furnishing it.
Kevin: So, what are the disadvantages that investors should be aware of?
Brad: I think the disadvantages… And I step out of property depreciation here because whether it’s vacant or not or what it is, it makes no difference. But when considering any investment in any way, furnished rental properties have furniture, so you have to buy it, firstly, or have it there, so it costs and then also, things that like break down and there are more things for you to have to potentially fix.
The growth out of these things sometimes is good, sometimes is bad. Who are your potential markets? It’s mom and dad buying it for the kids to go off and go to uni, etc. So, the turnover and they’re not something that often are held for necessarily as long. Summer breaks or holidays, they’re possibly vacant for a bit longer. And if it’s a student-only complex, you can’t sell it off to an owner-occupier. So, potentially less demand for when you sell it, effectively.
But we’ve done a lot of depreciations and a lot of particular ones, over time that as people seem to be quite happy with the returns over time. But you just have to be careful of a couple of little things that relate furnished student accommodation.
Kevin: At the outset, I mentioned there about that shortfall in supply over demand. Are there any other impacts on the property market when you look at that?
Brad: Supply in those areas mean that around a university, if there’s a lack of supply, it ends up taking up stock outside of rental stock that’s within a few suburbs of that university. It gets taken up by people and it affects the overall market. So, we have to build enough to house the students when we build a university, or we end up with more pressure on the rest that are around that.
I know even one of the properties I have that’s around there, for example, has an individual lock on every one of the single doors because it was an old four-bedroom house because they rent out those rooms individually to investors.
And what it does, is it just takes more properties out of the market so the other potential renters that were there, but it’s a typical supply-and-demand issue that we need to deal with. When we build a university, we have to build something to house the people, right?
Kevin: That’s right. Exactly. Hey, Brad, great talking to you, mate. Thank you for that insight. Brad Beer, of course, is the Chief Executive Officer of BMT Tax Depreciation. Thanks again, Brad.
Brad: Kevin, always a pleasure. Thank you.