Buy-to-let demand is booming! But would you do better buying shares in an ISA?

Royston Wild looks at some of the places that could generate the biggest rents in the UK today and whether they’re enough to tempt him into buy-to-let.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Most buy-to-let investors tend to purchase their properties near where they live.

Convenience and knowledge of the local market tend to be the main reasons, though the pursuit of such a strategy means that landlords could be missing out on making a packet when they look nearby instead of in one of the UK’s rental hotspots.

Why settle for lower rents when you can really light a fire under your investment income? The huge supply and demand balance in many British cities means that rents are going through the roof, and a recent report from Howsy shows the places where renter demand is the strongest.

In demand

The online property management platform analysed the market in 23 major metropolitan areas and found that the Welsh town of Newport is experiencing the highest level of tenant demand, with a whopping 35% of all rental homes here listed on the major portals already being let. Compare that with, say, the 5% of properties in Aberdeen that are currently being let.

Top 10 BEST Cities By Demand

Location
Rental Demand
Newport
35%
Bristol
34%
Nottingham
33%
Cambridge
33%
Belfast
25%
Plymouth
23%
Portsmouth
23%
Bournemouth
23%
Leicester
18%
Manchester
18%

Top 10 WORST Cities By Demand

Location
Rental Demand
Aberdeen
5%
Swansea
8%
Leeds
9%
Edinburgh
10%
Birmingham
14%
Cardiff
14%
Newcastle
14%
Liverpool
15%
Sheffield
16%
Southampton
16%

What should you do?

If you’re hell-bent on taking the plunge with buy-to-let, then Howsy’s data could prove invaluable. But if you’re anything like me then the report will hardly make an impact. Why? Well even those investors in Newport may find themselves struggling to make decent returns from their property portfolio as tax liabilities steadily rise, administration and regulatory costs balloon, and day-to-day running costs increase.

I remain convinced that getting exposure to the UK property market through the London stock market is a better bet. There’s a wide array of shares to pick from, whatever your attitude to risk, and they offer many different segments of the market to tap into. Plus there’s a world of opportunity for those seeking access to whopping income flows too.

Dividend dynamos

Want to ride the structural shortage of big logistics and warehousing spaces for e-commerce? Well Tritax Big Box and Urban Logistics REIT are both major operators in this field and are companies that are expected by City analysts to generate solid profits growth over the next few years. Oh, and they offer monster dividends of between 5% and 6% too.

Or how about splashing the cash on the housebuilders? These firms (for the most part) continue to grow profits thanks to strong first-time buyer demand, underpinned by the existence of low interest rates, intense competition in the mortgage market and the support of Help to Buy. And what’s more,  some of these companies (like Persimmon and its 8.6% yield) offer the kind of dividends to die for.

One of the hottest property segments to invest in is around companies involved in healthcare. Those with a low tolerance for risk may be tempted by this ultra-defensive arena, as it is one which looks set to balloon on the back of the UK’s booming ageing population. And as owners and operators of primary healthcare facilities, dividend growth shares Assura and Primary Health Properties are great ways to latch onto this trend.

And of course, I’d buy these in a Stocks and Shares to protect any gains from the taxman.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Tritax Big Box REIT. 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.

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