The pros and cons of student buy-to-let (and the 10 best places to be a student landlord)
Going to university remains a hugely popular choice for many students. According to official government data, there were around 750,000 applications for full-time undergraduate places in 2021 – a new record – and around 560,000 of these applicants were accepted.
Of course, in university towns and cities across the UK there is a demand for good-quality accommodation. So, if you’re considering investing in property, student buy-to-let could be an option that’s on your shortlist.
Read on to find out more about the pros and cons of student buy-to-let, and to discover the top 10 UK locations to be a student landlord.
Investing in student property can produce superior rental yields
If you’re looking to profit from property, then your rental yield is likely to be among your chief concerns.
Simply, your rental yield is the percentage return you can expect to make back on the purchase price each year, before tax, mortgage payments and other costs are included.
For example, a 5% yield on a £250,000 property would amount to £12,500 a year in rental income.
Research published by This is Money reveals that student properties can often generate higher than average rental yields. Student landlords made an overall mean rental yield of 6.6% in the third quarter of 2020, compared to 5.6% for those who did not let to students.
One of the reasons is that many student properties house multiple tenants, and so landlords can charge on a “per room” basis rather than on a fixed monthly tenancy.
As well as higher rental yields, it can often be cheaper to buy student accommodation than other types of residential or commercial property. Student properties are often smaller than a standard residential home, which usually results in a lower average price.
This lower price factors into the higher yields and can result in a better return on investment over time.
As well as the benefits of generating a monthly income, buying any property can also result in a gain when you come to sell it.
As an example, the Guardian reports Nationwide figures that show UK house prices rose at an average annual rate of 11% in the year to July 2022.
So, in simple terms, over a period of time you can generally expect to sell a property for more than you bought it for, generating a profit. Remember that, if you buy the property in your individual name, you may have Capital Gains Tax (CGT) to pay on any profits you make, at a rate of up to 28%.
If you buy the property using a limited company, there may be other taxes such as Corporation Tax to pay on profits.
Factors to consider if you’re letting to students
While student homes can offer superior rental yields and the potential for capital gains, there are some factors you should consider before you take the plunge.
Firstly, while one of the advantages of student buy-to-let is that you can let a home “by room”, if five or more tenants live in the property and form one household, it will be deemed a “house of multiple occupation” (HMO).
In this case, you must meet certain legal standards and obligations, which can include minimum bedroom sizes and having proper fire safety measures in place.
Additionally, when it comes to student accommodation you are likely to face fierce competition – most notably from new purpose-built flats being built across the country. These blocks often offer premier accommodation and additional facilities such as gyms or social areas, and this can dampen demand for traditional student HMOs.
You also have to consider that you’ll almost always have a “void” period over the summer when you aren’t receiving any rental income but may have to maintain mortgage payments.
Finally, you may also need to factor additional maintenance and repair costs into your budget, as students don’t have the best reputation for being the most respectful tenants. According to lender Paragon, 3 in 10 landlords consider property damage as their main concern when letting to students.
The top 10 UK locations to be a student landlord
Analysis by Paragon of property within popular student postcodes has highlighted the best UK locations in terms of rental yields typically generated by student accommodation.
The analysis revealed that Swansea was deemed to be the highest yielding town or city for student property, with an average property price of £231,534 and an average annual rental income of £22,140. This means investors could typically expect a rental yield of 9.56%.
The next highest-yielding location is Hull, home to 14,255 students, where the average student property in the city generates a return of 8.68% a year.
Interestingly, smaller towns and cities with one higher education institution tended to offer superior yields. Of the top 10 locations, only Liverpool, Coventry and Leeds have more than one university.
Liverpool was the highest yielding major city with two or more universities. The city had an average property price of £225,178 with an expected rental return of £18,569 a year on average, an 8.25% yield.
The top 10 best places to be a student landlord in the UK, according to the Paragon research, are:
Swansea
Hull
Plymouth
Liverpool
Coventry
Chester
Stoke-on-Trent
Lincoln
Preston
Leeds
Get in touch
If you’re thinking about buying student property, or you’re looking for expert buy-to-let advice, please get in touch via our Contact Us page.
