We looked into this.
My side hustle has always been to buy, renovate and rent property. I am good at both reading markets, and managing tenants and workmen. Friends often ask my advice, say when they have inherited property and almost always, I advise against. Landlords need to be professional. You don't have to watch too many reality TV programmes to see what can go wrong.
When DD was starting University, investing in property in her University town seemed like an excellent investment opportunity. Interest rates were low and prices, back in 2017 were moderate. I also had the advantage of a good specialist mortgage broker, the ability to refinance to raise the deposit and to act as guarantor. Looking back it would have been a really worth doing.
DD saw this at the time. She also knew I could support her. But perhaps because she has been helping out with end of tenancy cleans since she was about six, and seen the reality of being a landlord, she resisted. She did not want the responsibility, at least not that early. And indeed given a disastrous flat share (the friend that one of her friends brought in proved to be a nightmare) it is just as well she didn't. I agreed. It had to be something she wanted to do. In addition I would have had to be reasonably hands on, ensuring she had vetted/referenced potential flatmates, and perhaps organising and overseeing any major works; probably more involved in her life than either of us would have wanted.
Interestingly in her final (sixth!) year she was invited to share with someone who had used an inheritance to buy. That was fine. It was a new build terrace house that he had first shared with his brother and then with someone who was no longer a teenager. That said, some basic maintenance was very overdue.
In her first year as a junior doctor, DD is now buying. There is a shortage of rental property in her City so when her current flatmate moves to a distant placement there will be no shortage of new F1s keen to rent a room. She observed several F1s in her University town buy and then, if careers took them elsewhere, rent them out. From the outset the rent she receives plus the rent she saves, more than pays her mortgage, and if she has to move cities, she can use the rental income to rent, or possibly buy, elsewhere. There is scope to add a double storey extension to DDs house, so she pays down the mortgage and when her salary increases she re-mortgages, builds the extension and effectively is another step up on the ladder.
Property goes in their name, otherwise it is just another buy to let. They get the benefits of being FTBs and of being able to get a contribution to mortgage payments by renting room(s) and in the Bath BS scheme I think the income from the additional rent is factored in. Letting a room when the owner occupier is advantageous both legally and tax wise. Various draft agreements can be found on-line. If the owner has been living there there is no capital gains and students are unlikely to be paying much income tax. Plus if you are lucky you can live almost rent free whilst paying off a mortgage. (HMO legislation varies from town to town but applies to larger properties and I am not aware of it applying to owner-occupied properties. Either way it is simply a matter of getting the right certificates and ticking the right boxes.)
However:
- I would not expect capital gains, especially in Southern England. The new Labour Government will need to raise money somehow and more affluent property owners will be in the firing line one way or another. (Estate Agents are saying that the London market, after a short recovery is now very jumpy.)
- I would not bank on interest rates falling by much. So though rents might be high the cost of borrowing will also remain relatively high.
- It is a big responsibility. Getting flatmates to pay their share of utility bills, clean the bathroom or put the bin out can be a struggle for many teenagers. To be both flatmate and landlord, whilst trying to study, will be a responsibility that many will be reluctant to take.