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Sipp warning on halls of residence

I was interested to read the recent article in Money Marketing on Sipps being able to invest in for student halls of residence.

The Revenue has said that the property must be identified by an educational establishment as one of its halls of residence. It must also be demonstrated that the educational establishment in question must be involved in placing students in the building and that students must be limited to one residence.

The first consideration must be given to whether it really is a suitable investment for the portfolio as this type of investment is not without its downsides.

In particular, there can be high maintenance costs, potential rental voids outside term time and even higher insurance costs. There are also likely to be increased management costs to deal with deposits and “emergency” situations often associated with letting to students.

From a Sipp provider’s perspective, I would expect there to be a “master lease” in place, with the “tenant” then effectively sub-leasing to the students.

If the investor is still keen to buy into this style of investment, one final area is worth watching out for – the costs of refurbishment. It is well known that student residences take a bit more of a “hammering” than normal properties. All these things aside, the right investment could well be considered as part of a balanced retirement portfolio.

Mike Morrison, Winterthur Life

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