Recently, I wrote an article that looked at some of the disadvantages of buy-to-let property investing. It’s clear to see that recent regulatory changes have made this style of investing less appealing than it used to be.
However, just because buy-to-let is no longer as attractive as it once was doesn’t mean you should necessarily avoid property as an investment altogether. Having some exposure to property within your portfolio is generally a sensible strategy for diversification purposes.
With that in mind, here’s a look at one way to get exposure to property without touching buy-to-let.
Real estate investment trusts
A real estate investment trust (REIT) is a listed company that owns and operates income-producing real estate. You can buy and sell REITs in the same way as normal shares, through your broker.
There are all kinds of different REITs, with most specialising in specific real-estate sectors such as commercial real estate, apartment buildings, storage, residential property or shopping centres. In most cases, REITs operate by leasing their properties out and then passing on rental income to investors in the form of dividends (90% of rental income has to be paid out to shareholders).
Advantages of REITs
There are many advantages that REITs have over buy-to-let. For starters, buying one is so much easier than purchasing a buy-to-let property as you can invest with just a small amount of capital. You won’t have to get a mortgage and your transactions costs will also be lower because you won’t need to pay for legal fees and other expenses.
Second, investing in a REIT is generally much less hassle than investing in a buy-to-let property as you don’t have to worry about things like tenants, repairs, or changing regulation. Third, it’s easier to diversify your portfolio as you can spread your money out over a handful of REITs that are focused on different areas of the market. That way, you may be less exposed to a potential property market downturn. Fourth, if you need access to your capital, it’s much easier to cash out of a REIT than it is a buy-to-let property, as they are considerably more liquid.
It’s clear that this approach can offer investors many advantages over buy-to-let investing so let’s look at some examples of UK REITs?
REIT examples
There are many different REITs listed on the London Stock Exchange, so UK investors have plenty of choice when it comes to adding property investments to their portfolios.
One that I think has a lot of appeal is FTSE 250-listed Tritax Big Box, which invests in big boxes – very large logistics facilities that hold goods for companies such as Amazon, Argos and B&Q. It has rewarded investors with capital growth and dividends in recent years and looks to be a good way to play the online shopping boom.
Workspace, which provides commercial property to let throughout London, is home to 4,000 fast-growing startups, and it also looks quite interesting as a long-term play, in my view. It also highlights the variety on offer with this investing strategy.
Of course, these are just two examples of UK-listed firms. There are many more. For those looking to add property exposure to their portfolios, REITs could be an effective, and hassle-free alternative to buy-to-let.