But behind the marketing are some hidden risks. First, you’ll probably need cash to buy a pod – mortgage lenders are not keen to advance money against this type of investment.
“While not impossible to obtain finance to buy a student pod, it will not be through a traditional buy-to-let provider, so you will not be able to get any of the leading buy-to-let rates, ” said Mark Harris, chief executive of mortgage broker SPF Private Clients. “Finance may be possible via commercial divisions of lenders or, very occasionally, where a regional building society will have a loan available in conjunction with a local higher education establishment. The issue traditional lenders have with such investments is the tenancy and re‑saleability.”
Most student pods are sold “off plan” – which means before they are complete – and come fully managed.
Stuart Law of property investment group Assetz said this meant you were taking two risks: “development risk” and “management risk”.
“What if the development isn’t finished or the developer doesn’t have the skill or experience to manage the block?” he said.
Another concern is the “rental guarantee” offered by developers. This can often be an overstatement. Robert Bence of investment company RMP Property doesn’t offer pods to his investors – and the rent guarantee is one reason for this.
“The guaranteed rents are attractive to investors, but often they fail to materialise. I believe that investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure, ” he said.
“There have been a number of student pod schemes that have stopped paying out the guaranteed rents soon after completion and investors have then discovered that the real market rate for the rents is much lower, reducing their yield and turning their investment from hands-off to hands-on.”
Finally, there is your exit strategy. With a normal buy-to-let you can potentially sell the property to the entire market – first-time buyers, home movers or investors.
“Your options are limited when selling on a student pod. The only chance of selling would be to another investor, ” said Mr Bence.
So if pods and studios are such risky investments, what are analysts such as Knight Frank and Savills talking about when they describe student housing as one of the best-performing asset classes in Britain?
“The high-performing student accommodation they’re talking about is halls of residence owned outright by institutional investors, such as pension funds, ” said Mr Law. “Alternatively, it might be 'cluster’ apartments where four or five bedrooms all share living space within a hall of residence and you buy the whole cluster.”
For individual investors there have been several high-profile cases in which student developments haven’t delivered as promised. Last November, Liverpool-based Middle England Developments was put into administration by its owner, property developer Nigel Russell, with debts of £3m. The firm had sold individual bedrooms to investors for about £50, 000, with “guaranteed” returns that failed to materialise.
Meanwhile, this time last year, another developer, FreshStart Living, agreed to hand over £131, 000 in unpaid rent to 70 investors. It has since stopped selling pods to individual investors.
Your student property options
Another option for investors in student accommodation is to buy a “house in multiple occupation” or HMO.
HMOs – let on a per-room basis to unrelated tenants – can be profitable but are high risk. All HMOs need a licence, but councils vary on the conditions required.
“Some local authorities are cleansing whole areas of student HMOs for various reasons, such as wanting tenants who pay council tax, ” said Stuart Law of Assetz. Students don’t pay the tax.
Landlords renting out HMOs without a licence can be fined up to £20, 000.
For investors who prefer to pool their money with others, there are retail funds that invest in student accommodation – but it’s not an investment for the faint-hearted.
“Despite the high headline yields often touted, student accommodation funds are high risk, ” said Patrick Connolly of financial advisers Chase de Vere. “They are usually based offshore, are unregulated, have high charges and can suffer from poor liquidity, meaning it might be difficult to get your money back when you want it. They are more suitable for institutions than retail investors.”
Brandeaux’s Student Accommodation fund is one that has run into problems. Listed on the Irish Stock Exchange, it has been suspended since last July.
The £1bn fund invests in accommodation rented to students under the name “Liberty Living” and at one point was paying annual returns of 9.5pc to 10.6pc. Its suspension means investors can no longer buy into the fund or, more crucially, get their money out.
A Brandeaux spokesman said: “The directors of the fund are considering various options to create liquidity in the fund since suspending redemptions in July 2013. The student funds and their advisers are working to reach a solution.”