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Forget buy-to-let: I think this big-yielding property stock could net you a £1m ISA

Thinking of taking the plunge with buy-to-let? Think again, I say. It’s easy to be seduced by the constant flow of data showing just how big rents are in large parts of the country. Fresh numbers released by lettings platform Bunk would almost certainly been enough to set many hearts racing, I’m sure.

Its data showed that while average rents in the UK have risen by 16% in just five years, rental costs in so-called gentrified areas — those that have undergone vast changes to attract a more prosperous clientele — have grown on average by a chubbier 21%.

It’s not a well-guarded secret that urban generation leads to higher rents. What is staggering, though, is the rate at which rents have grown in some of these areas (as the table below shows). In Manchester, for example, rental prices have ballooned by almost 40% during the past half decade.

Average Rent Change By City (2014-2019)

Gentrification Hotspot Rent Change
Manchester 38%
Cambridge 31%
Newcastle 31%
Bristol 29%
Portsmouth 19%
Liverpool 17%
Brighton 16%
Oxford 16%
Reading 15%
Sheffield 15%
Birmingham 15%
London 13%
Average Change In Gentrified Areas 21%
Average Change In England 16%
Source: Bunk

But before leaping into the buy-to-let market, it’s important to remember big rent increases don’t always translate into chunky returns for landlords. And certainly not at the present time taking into account a toxic cocktail of increasingly-large tax bills, rising operating costs, and an assortment of new regulatory and administrative fees.

Unite to win

A much better way to make your cash work for you is by investing in Unite Group (LSE: UTG), in my opinion. Student accommodation is big business and, just like we see in the broader rentals sector, there’s a severe shortage of available property which is supporting handsome rent growth for specialists in this area. To illustrate this point perfectly, the FTSE 250 business last week declared that European Public Real Estate Association (or EPRA) earnings leapt 16% in the first half of 2019 to £61.2m. And this encouraged it to raise the half-time dividend 8% to 10.25p per share.

Undergraduate and postgraduate numbers are swelling in the UK and there’s no reason, therefore, to expect Unite and its peers to stop delivering some delicious shareholder returns. City analysts certainly share my bullishness and reckon the firm’s record of double-digit annual earnings increases are here to stay for some time at least (rises of 14% and 10% are predicted for 2019 and 2020, respectively).

A millionaire maker?

Unite’s not content to rest on its laurels in the hunt for handsome profits growth, however. It supercharged its long-term earnings outlook with the £1.4bn takeover of rival Liberty Living in a move that’ll create an industry giant providing 75,000 beds the length and breadth of the country.

Over the past 12 months, total shareholder returns at Unite — that’s the value of dividend payments added to share price gains in the period — have clocked in at a very-handsome 25.7%. Should the company be able to replicate this performance, a £10,000 investment from you or I into a Stocks and Shares ISA today would generate a cool £1,219,104 in just 21 years. And I reckon the business has all the tools to indeed provide such scintillating shareholder returns.

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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.