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How Student compares with Buy-to-Let Property?

From Property Talk Live on June 20, 2014

With some excellent mortgage rates as low 3.99% fixed for 5 years, it seems like a good time to be purchasing residential property.

London house prices are not the only ones to benefit from the growing investor confidence as the average UK House Price has grown by 9.1% year on year (ONS)

National Office of Statistics announces the third consecutive fall in inflation. Low inflation means that the prospective of interest rates increasing in the near future is unlikely. This presents bad news to savers.

There is an abundance of choice for investors and with the latest changes in annuities laws there are also some benefits of increased return that can be generated by investing ones cash ISA allowance into shares.

For a lot of people, who still prefer to invest in bricks and mortar the choices at the they face are more between selecting a buy-to-let investment in residential property or the ever popular student accommodation investments.

Experienced landlords continued to be swayed towards buy-to-let property because of the power of gearing. Purchasers can obtain mortgages that cover as much 75% of the purchase price (loan to value). In plain terms, that means that investors are using more of the banks money to create a higher return on their cash invested.

The model seems to work well for young investors who are stating to grow their property portfolio but what about investors who are looking to bolster their own income? The student property investments, of which the majority are cash only investments, appear to provide the solution because they are within the average range of affordability and generate a higher yield than most buy-to-let properties.

When one compares the total returns of buy-to-let versus student property the two compare favourably.

Where buy-to-let property has an average of yield of 5.5% according to the ARLA (Association of Rental Letting Agents) compared with student accommodation investments  that generate hand free investment returns of 8% Net income.

The advantage of buy-to-let residential properties is if they are in high growth areas, such as Battersea and Nine Elms London, where infrastructure changes are taking place, double-digit capital growth rates can be achieved. Student property typically appreciates in line with the rental increases of between 3% and 5% according to Knight Frank student review.

In some instances, an investor can acquire a property that qualifies for a mortgage and can also be used as student accommodation. These types of properties are called Houses of Multiple Occupation HMO.

The higher rental income combined with the ability to obtain a mortgage means that one can reasonably achieve a return on cash of 14% per annum. If a savvy investor were to use the additional income to pay down the mortgage, the house could be paid off within 6 years.

Source: Property Talk Live