The cost of buy-to-let investing is becoming more and more prohibitive, so property owners need to become increasingly-savvy in order to generate any sort of decent return.
I recently explained how landlords can enhance their gains by choosing to buy their property through a limited company. And data just released by Precise Mortgages shows that a great many investors are planning to do just that in the months ahead.
According to the lender, more than half of landlords — or 55% to be exact — are intending to buy property via a limited company during the next year. To put this into context, this is twice the number that are planning to buy as an individual (24%).
A growing trend
Buying through a limited company is becoming an increasingly-popular way for investors to grab a slice of the buy-to-let market. The number of landlords currently intending to buy using this method has risen from 53% in the first quarter of 2019 and 44% in the final three months of 2018.
The advantages of going down this road are pretty clear: the phased reduction in mortgage interest tax relief doesn’t apply; investors can offset mortgage interest against profits subject to corporation tax of 19%; and better interest cover ratios than can be found on most individual landlord products.
If I were to invest in buy-to-let today, I expect I’d follow the crowd and do it through a limited company too. Not that I would go anywhere near this particular sector however, given the mountain of extra costs and regulatory requirements landlords now have to contend with.
A better investment
There are many better ways to get into the rentals sector today, and I consider one of the best to be buying shares in Unite Group (LSE: UTG).
The student lets segment is one part of the property market that keeps going from strength to strength. There’s a huge shortage of available accommodation in and around university towns thanks to booming levels of students from inside and outside the UK, and this is why Unite is expected to see rents rise between 3% and 3.5% in the 2019/2020 and 2020/2021 academic years. This compares with the rent rises seen in the broader buy-to-let segment which currently sit below 2%.
As one of the country’s biggest players in the student accommodation segment — it owns 50,000 beds in 22 towns — Unite’s well placed to capitalise on this fertile landscape. And it’s expanding aggressively to help turbocharge future revenues growth, its planned acquisition of Liberty Living being set to boost bed numbers by 50% to 75,000.
In the medium term, City analysts are forecasting that annual earnings at Unite will keep swelling by double-digit percentages in 2019 and 2020 (by 13% to be exact). And there’s no reason to expect the lettings giant to stop creating brilliant profits growth in the years ahead.
