The Motley Fool

University towns pay the biggest buy-to-let yields! Is this the fast way to a fortune?

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

Better buys

Broadly speaking, then, university districts (or close proximity to these) are the places to be for buy-to-let investment to dive into for maximum rents. Does this mean, though, that getting involved in the student lets market is the best way to use your excess cash?

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.

Want To Boost Your Savings?

Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.

The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?

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.