Residential property is considered more-or-less the standard buy-to-let option. However, as a result of soaring demand recent years have seen more and more investors opting for student accommodation. There are various factors to consider when choosing which approach to go for, but what about pure profit? Between residential property and student accommodation, which tends to deliver higher returns for investors?

It is important to note, however, that the phrase "student accommodation" really refers to two distinct asset types – though obviously they both serve the same purpose of housing students. One type takes the form of a residential property, usually a house with several bedrooms, let as shared accommodation to a group of students. The other, which has been growing increasingly popular in recent years, is a self-contained student unit in a larger complex which has been specifically designed for purpose.

Demand is one of the main factors driving up profit. High demand makes properties easier to fill and means that higher rental returns can be made. While demand in the residential buy-to-let sector is currently not to be sniffed at, student accommodation really stands out in this regard. It is high demand that has attracted so many new landlords to the sector. Increasing numbers of university places and large numbers of international students (according to UNESCO, the UK is the world's second most popular destination for overseas study) have put a lot of pressure on the market. This has made student properties easier to fill, and means that students are often willing to pay more for the right property. However, in spite of severe undersupply it is largely the higher-quality properties in the best locations that have benefited. Buying purpose-built student accommodation is often the best, easiest and most cost-effective way to get these desirable factors, though purchasing another property in a prime location and converting it for student use could result in fast value growth as its investment potential rises sharply.

Dedicated student properties also benefit from economies of scale in their construction, yet largely cater to the section of the market that is willing to pay more for higher living standards. Residential properties converted for student use also tend to attract higher and more consistent rents overall than if they remained residential, as a result of letting each bedroom separately. This makes the situation look rather one-sided in favour of student property. Certainly student properties are likely to prove the most lucrative in terms of rental returns – provided they are well-located and offer the standards that modern students desire. However, this is confined to rental returns, and this is only one of the revenue streams that properties contain. When it comes to value growth, many believe that even in the face of increasing demand, student properties are likely to be outperformed by residential ones in the long term.

The question of which is more profitable therefore depends on your investment goals. If you want higher rental returns – the more immediate and liquid source of revenue – a well-chosen student property could be your best bet. If you are happy to play the long game and keep a larger part of your revenue tied up for the time being, residential property may be a better option.