Student accommodation
Yield
The yield of a property is the ratio between the annual rent it produces and what it is worth. It is used to compare buildings with each other and with other investments, and to value a purchase: the safer the income looks, the lower the yield a buyer will accept.
Also known asproperty yield · initial yield · cap rate · capitalisation rate
How to read it
The sum is simple: a year's rent divided by the value of the building. What changes from one conversation to the next is which rent and which value go into it, so before comparing two yields you have to ask which one is meant. In the United Kingdom the sector just calls it yield, and in Spain the English word has stuck in any deal that involves funds.
| Term | What goes into the sum |
|---|---|
| Gross | All the rent, before costs |
| Net | The rent left after the costs the owner pays |
| Initial | The rent being collected today |
| Reversionary | The rent that would be collected if it moved to its estimated rental value |
| Cap rate | Another name for the ratio, usually with net operating income and current value |
In a residence, net rent depends on two things the building's team can actually see: how many beds are filled, which is the occupancy rate, and how much it costs to keep them running. Two residences with the same gross rent can end up far apart on net: the one with full board and a reception open all night spends much more on running than a building of studios with no services. And a high yield is not good news on its own: it usually means the market sees more risk in that income, because of the location, shorter contracts or occupancy that has not been proven. It is the number the asset manager works with.
Sources
Related terms
- Asset managerThe asset manager runs a building or a property portfolio on the investor's behalf: it sets the business plan, approves budgets and capital spending, oversees the operator and proposes when to refurbish, refinance or sell. It looks at the residence as an investment, not as a home.
- Forward fundingForward funding is a way of financing a development in which the investor who will keep the building pays for the construction as it progresses, instead of buying it finished. The developer builds without looking for a loan, and the investor takes on part of the construction risk in exchange for coming in early.
- Occupancy rateThe occupancy rate is the share of a residence's beds that are occupied or committed at a given moment or over a period. It is the first figure anyone looks at in a student building, because income depends on it, and so does almost everything calculated afterwards.