A sea of buy-to-let changes has made it more critical than ever to squeeze as much rental income out of your property portfolio as you can.
Rents are rising, which is great. Data released last week from the Deposit Protection Service showed average rents in the UK rose 1.8% in the second quarter. But don’t break out the celebratory bunting, this uplift is most probably down to landlords passing on costs associated with the recently-introduced Tenant Fees Act to their renters.
Buy-to-let investors need to box clever to generate decent returns from their properties. Fresh research from online letting agent Howsy explains one way that landlords can do just that — through buying and renting out homes close to university campuses.
University challenge According to Howsy, almost every one of the UK’s best postcode districts for buy-to-let rental yields is within close proximity to a university campus. In fact 17 of the 20 best-yielding districts are just a stone’s throw from a major academic institution, led by BD1 in Bradford and its titanic average rental yields of 10.2%.
Student lets have long been a lucrative sub-segment for buy-to-let investors, of course. As Howsy chief executive Calum Brannan comments: “While students aren’t always the ideal tenants, they bring consistent demand via an annual flow of new arrivals, the void periods are generally much shorter, and the supply-demand imbalance puts the landlord in control when choosing a tenant.”
The top 20 UK postcodes for rental yields
| Location | Postcode District | Average House Price | Average Rent (per month) | Average Rental Yield (%) | University Campus |
| Sandwich, Kent | CT13 | £388,310 | £5,893 | 18.2% | None |
| Bradford | BD1 | £54,938 | £468 | 10.2% | University of Bradford |
| Greenock, Renfrewshire | PA15 | £48,609 | £394 | 9.7% | None |
| Sunderland | SR1 | £63,320 | £498 | 9.4% | University of Sunderland city campus |
| Liverpool | L7 | £95,117 | £737 | 9.3% | University of Liverpool & The Royal Liverpool University Hospital |
| Middlesbrough | TS1 | £57,452 | £442 | 9.2% | Teeside University |
| Liverpool | L6 | £88,963 | £672 | 9.1% | University of Liverpool & The Royal Liverpool University Hospital |
| Liverpool | L1 | £99,908 | £728 | 8.7% | University of Liverpool |
| Grimsby | DN31 | £63,696 | £442 | 8.3% | University of Grimsby |
| Edinburgh | EH8 | £226,068 | £1,556 | 8.3% | University of Edinburgh |
| Pontypridd | CF37 | £114,784 | £776 | 8.1% | University of South Wales – Treforest Campus |
| Paisley | PA3 | £64,074 | £433 | 8.1% | University of the West of Scotland – Paisley campus |
| Glasgow | G21 | £75,733 | £511 | 8.1% | Glasgow Caledonian University – Glasgow School of Art |
| Manchester | M14 | £176,901 | £1,170 | 7.9% | The University of Manchester & Manchester Royal Infirmary |
| Falkirk | FK3 | £71,233 | £468 | 7.9% | None |
| Newcastle | NE6 | £122,533 | £797 | 7.8% | Newcastle University & Northumbria University |
| Leeds | LS6 | £200,126 | £1,300 | 7.8% | Leeds University & Leeds Arts University |
| Nottingham | NG1 | £133,524 | £849 | 7.6% | Nottingham Trent University |
| Glasgow | G52 | £89,809 | £568 | 7.6% | Queen Elizabeth University Hospital & Glasgow Caledonian University |
| Glasgow | G14 | £92,683 | £576 | 7.5% | Queen Elizabeth University Hospital & Glasgow Caledonian University |
I’m not convinced, and indeed feel the need to challenge Howsy’s belief that investment in or around academic campuses is “almost certain to provide a healthy return.” Regulatory and tax changes in recent years have seriously smacked investor returns, whether it be through extra stamp duty costs or reduced tax relief on mortgage interest, changes to house of multiple occupancy rules or unforeseen costs because of the Tenant Fees Act. And conditions are getting worse and worse as government forces landlords from the market to free up homes for first-time buyers.
Getting involved in the student accommodation market is a great way to make money, but a better way to do this is buying into one of London’s dedicated specialists in this field. FTSE 250-listed Unite Group put out another rosy trading statement last week — one which propelled its share price to fresh all-time highs — though investors can also access the market via GCP Student Living and Empiric Student Property.
Some of the returns here have been quite staggering in recent times. Shareholders at Unite Group, for instance, have enjoyed total returns of 25.9% over the past 12 months alone. And there’s no reason why these student digs specialists can’t keep thriving as student numbers surge in the UK. So ignore buy-to-let, I say, and snap up one of these stocks instead.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019