There’s been a huge exodus of buy-to-let investors in recent years. A mix of falling tax relief, rising costs and increased regulatory burdens have prompted landlords to sell their rental properties in large numbers.
I can see the appeal in investing in buy-to-let though. I’m expecting UK home prices to keep rising sharply. There’s also the fact that rents continue increasing at breakneck pace.
More problems for landlords
Having said that, I’m not tempted to take the plunge right now. The costs and challenges associated with investing here are numerous and continue to grow too.
Indeed today the government floated fresh reforms under a ‘Renters Reform Bill’ that could make being a landlord less attractive. Some of the measures suggested include: ending ‘no fault’ evictions; banning ‘unfair’ rent increases, preventing landlords from excluding tenants who claim benefits; and extending the Decent Homes Standard to the private sector, potentially driving landlord costs much higher.
UK shares I’d buy over buy-to-let
I don’t oppose some of the ideas being discussed. As a former renter I applaud measures to clamp down on bad landlords.
But today’s news shows underlines why I think investing in UK shares is a better way for me to get exposure to the residential rentals market.
I can buy shares in Grainger for example, the country’s largest-listed residential landlord. This property stock has around 9,800 homes in its portfolio and roughly the same number in its development pipeline.
I can also purchase Residential Secure Income REIT. This real estate investment trust also offers exposure to the retirement property and shared ownership segments. Home REIT is another trust that provides specialist accommodation for homeless people.
Big advantages
That said, I wouldn’t have a direct influence on the properties these UK shares choose to have in their portfolio. This lack of authority could be problematic if, for example, I don’t like the certain location of certain assets.
Still, I think this hands-off approach could be generally very beneficial to me. Buy-to-let can be a highly time- and energy-consuming pursuit. I think the pros of leaving control to experts like Grainger outweigh the cons. Getting exposure to property via shares is also more cost effective than if I do it individually, I feel.
A great place for me to invest
I also like the fact that I don’t have to spend a fortune to get started. I can choose to spend just a few thousand of pounds to build a position in one of those shares mentioned above. Conversely, I’d have to pay large upfront costs to acquire and then let out a property via the buy-to-let route.
These UK property stocks aren’t without risk. Rising contractor costs and increasing building product prices are one threat to these companies’ profits, for example.
However, I believe the rate at which rents are rising in the UK — and are likely to continue to as the supply crunch drags on — still makes residential rentals shares an excellent place for me to invest.