Conditions are becoming increasingly more difficult for the average buy-to-let investor. It’s why I think acquiring real estate investment trusts (REITs) is a better way to invest in property.
Admittedly, private residential rents are shooting through the roof. But the costs, as well as the day-to-day effort, of owning a buy-to-let property are also increasing. This is making life tougher for many landlords in the UK.
A National Residential Landlords Association (NRLA) study reveals the growing discontent among private landlords.
“Anti-landlord agenda”
According to the NRLA, a whopping 90% of landlords feel that a planned government overhaul of the rental sector “demonstrates an anti-landlord agenda”.
Of the 3,500 landlords the body questioned, 87% said a white paper to reform buy-to-let is “hostile” towards them. A significant 77% said that proposals represent a serious risk to their businesses. And 71% felt they were being “driven out” of the sector.
The white paper’s key proposals include scrapping fixed-term tenancies and the scrapping of so-called no-fault evictions.
5 top REITS to buy
These new proposals add extra obstacles for landlords to make profits in a straightforward manner. The scrapping of tax relief and higher regulation have already added considerable costs onto their shoulders.
For these reasons I believe investing in a REIT is a better way for me to make passive income from residential property. Buy-to-let gives investors more control over which specific properties to buy. But REITs require minimal effort to buy and to own. They also don’t require vast upfront sums to acquire and they are extremely tax-efficient ways to invest.
Residential Secure Income REIT and The PRS REIT are two such shares I’d buy to own for the long haul. These particular REITs specialise in supplying family rented homes and retirement properties respectively.
Home REIT, which provides sheltered housing for homeless people, is another top property stock I’d buy today. Meanwhile, specialist accommodation providers Unite Group and Empiric Student Property make money from the growing number of overseas students at UK universities.
Making passive income
These companies each operate in an area where demand is tipped to outstrip supply long into the future. An NRLA report, for example, suggests that a colossal 227,000 private rented homes are needed every year for the next 10 years to meet demand.
It’s true that REITs like those described above are having to deal with rising construction costs. But, in my opinion, the prospect of strong rent growth over the long term still makes them great investments today.
I particularly like REITs because of my position as a keen dividend investor. In exchange for certain tax advantages these companies have to pay 90% of annual profits out in the form of dividends. This means that they can provide investors with a healthy and reliable flow of passive income.